Brown Corporation makes four products in a single facility. These products have

Question

Brown Corporation makes four products in a single facility. These products have the following unit product costs: Products A B C D Direct materials $15.60 $19.50 $12.50 $15.20 Direct labor 17.60 21.00 15.40 9.40 Variable manufacturing overhead 4.40 5.60 8.10 5.10 Fixed manufacturing overhead 27.50 14.40 14.50 16.50 Unit product cost $65.10 $60.50 $50.50 $46.20 Additional data concerning these products are listed below. Products A B C D Grinding minutes per unit 2.00 1.10 0.70 0.30 Selling price per unit $78.70 $71.10 $67.90 $62.60 Variable selling cost per unit $2.60 $3.10 $2.80 $3.50 Monthly demand in units 3,000 2,000 2,000 4,000 The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines. Direct labor is a variable cost in this company. Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round off to the nearest whole cent.)

Explanation / Answer

A B C D Direct material 15.6 19.5 12.5 15.2 Direct labour 17.6 21 15.4 9.4 Variable manufaturing overhead 4.4 5.6 8.1 5.1 Variable selling cost per unit 2.6 3.1 2.8 3.5 Variable cost per unit 40.2 49.2 38.8 33.2 A B C D Selling price per unit 78.71 71.1 67.9 62.6 variable cost per unit 40.2 49.2 38.8 33.2 contribution margin 38.51 21.9 29.1 29.4 Amount of the constrained resources required to produce 2 1 0.7 0.3 one unit 19.255 21.9 41.57143 98 Ranking 4 3 2 1 The company should be willing to pay up to the contribution margin per minute for themarginal job, which is $19.255 per minute for Product A

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