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

Question

Bruce Corporation makes four products in a single facility. These products have the following unit product costs:

Additional data concerning these products are listed below.

The grinding machines are potentially the constraint in the production facility. A total of 74,700 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 your intermediate calculations to 2 decimal places.)

Multiple Choice

$11.65

$3.58

$7.16

$9.81

Products A B C D Direct materials $ 14.90 $ 10.80 $ 11.60 $ 11.20 Direct labor 20.00 28.00 34.20 41.00 Variable manufacturing overhead 4.90 3.30 3.20 3.80 Fixed manufacturing overhead 27.10 35.40 27.20 37.80 Unit product cost 66.90 77.50 76.20 93.80

Explanation / Answer

Since total available grinding time is 74,700 minutes only, demand for all the product cannot be satisfied

Units that give highest contribution per minute of grinding time will be produced first.

Thus for every additional grinding minute the company can maximum pay $ 7.16 (Contribition Margin per Grinding Minute of Product C)

Product Grinding Time per Unit Demand (Units) Total Grinding minutes required A                     4.40                 4,600                  20,240 B                     5.90                 4,600                  27,140 C                     4.90                 3,600                  17,640 D                     4.00                 2,600                  10,400 Total                  75,420

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