The Company makes three products in a single facility. These products have the f
ID: 2585189 • Letter: T
Question
The Company makes three products in a single facility. These products have the following unit product costs:
-----------------------------------------A B C
Direct Materials $10.90 15.80 8.00
Direct Labor 12.5 12.6 9.9
Variable manufacturing overhead 2.4 1.2 1.4
Fixed manufacturing overhead 11.6 7.2 7.8
Unit product cost 37.4 36.8 27.1
Additional data concerning these products are listed below.
----------------------------------------A B C
Mixing minutes per unit 2.00 1.00 0.5
Selling price unit $55.8 54.6 43.1
Variable selling cost per unit 2.1 1.4 1.9
Monthly demand in units 2,000 1,000 3,000
The mixing machines are potentially the constraint in the production facility. A total of 5,900 minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all three products?
b. How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.)
c. Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round off to the nearest whole cent.)
Explanation / Answer
a.
A
B
C
Mixing minutes per unit
2
1
0.5
Monthly demand in units
2000
1000
3000
Mixing Minutues required
4000
1000
1500
Total mixing minutes to satsfy all the demand
6500
b. Maximize the net income
A
B
C
Selling Price
$ 55.80
$ 54.60
$ 43.10
Variable Selling Cost
$ 2.10
$ 1.40
$ 1.90
Net Selling Price
$ 53.70
$ 53.20
$ 41.20
Mixing minutes per unit
2
1
0.5
Net Price per Mixing Minute
$ 26.85
$ 53.20
$ 82.40
Ratings
III
II
I
Mixing Minutes required
4000
1000
1500
Total Available Mixing Machine Minutes
5900
Allocation of Minutes as per rating
3400
1000
1500
Production of Products
1700
1000
3000
c. Maximum Price for one extra machine hour
Extra Mixing Machine Minutes
60
No. of units of Product A that can be produced
30
Net Selling Price
$ 54
Maximum Price to offer
$ 1,611
a.
A
B
C
Mixing minutes per unit
2
1
0.5
Monthly demand in units
2000
1000
3000
Mixing Minutues required
4000
1000
1500
Total mixing minutes to satsfy all the demand
6500
b. Maximize the net income
A
B
C
Selling Price
$ 55.80
$ 54.60
$ 43.10
Variable Selling Cost
$ 2.10
$ 1.40
$ 1.90
Net Selling Price
$ 53.70
$ 53.20
$ 41.20
Mixing minutes per unit
2
1
0.5
Net Price per Mixing Minute
$ 26.85
$ 53.20
$ 82.40
Ratings
III
II
I
Mixing Minutes required
4000
1000
1500
Total Available Mixing Machine Minutes
5900
Allocation of Minutes as per rating
3400
1000
1500
Production of Products
1700
1000
3000
c. Maximum Price for one extra machine hour
Extra Mixing Machine Minutes
60
No. of units of Product A that can be produced
30
Net Selling Price
$ 54
Maximum Price to offer
$ 1,611
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