Glocker Company makes three products in a single facility. These products have t

Question

Glocker Company makes three products in a single facility. These products have the following unit product costs:

Product

The mixing machines are potentially the constraint in the production facility. A total of 7,080 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 hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round your answer to 2 decimal places.)

Glocker Company makes three products in a single facility. These products have the following unit product costs:

Explanation / Answer

first let us calculate the contribution margin per mixing minute to know the lowest contribution margin mixing minute.

0.80

the company can pay upto the lowest of contribution per minute i.e $3.14 per minute converted into hourly rate,

=>$3.14 *60 minutes.

=>$188.40 per hour

The company should be willing to pay $188.40 per one additional hour fo mixing machine time, if the company has made the best use of existing mixing machne capacity.

A B C Selling price per unit $60.00 $82.40 $75.90 less: Variable cost: direct materials 33.00 49.50 55.90 direct labour 20.40 23.00 13.80 variable manufacturing overhead 1.40 0.80 0.70 variable selling cost per unit

0.80

1.30 2.10 Total variable cost 55.60 74.60 72.5 contribution per unit (selling price - variable cost) $4.40 $7.80 $3.4 mixing minutes per unit 1.4 1.00 0.40 contribution per mixing minute $3.14 $7.80 $8.50

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