Garson, Inc. produces three products. Data concerning the selling prices and uni
ID: 2533812 • Letter: G
Question
Garson, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:
Fixed costs are applied to the products on the basis of direct labor hours.
Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,600 minutes of milling machine time available this week.
Required:
a. Given the milling machine constraint, which product should be emphasized?
b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of milling machine time?
Product F G H Selling price $ 65 $ 45 $ 75 Variable costs $ 40 $ 30 $ 45 Fixed costs $ 25 $ 6 $ 22 Milling machine time (minutes) 10 2 3Explanation / Answer
a F G H Selling price 65 45 75 Less: Variable costs 40 30 45 Unit contribution margin 25 15 30 Milling machine time (minutes) 10 2 3 Contribution margin per minute 2.5 7.5 10 Product H should be emphasized b Amount paid for an additional hour = 10*60 = $600 per hour
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