Glocker Company makes three products in a single facility. These products have t
ID: 2591118 • Letter: G
Question
Glocker Company makes three products in a single facility. These products have the following unit product costs Product Direct materials Direct labor Variable manufacturing 34.40 50.90 57.30 $ 21.80 24.40 15.20 $1.60 1.00 0.90 overhead Fixed manufacturing overhead 11.50 7.10 7.70 Unit product cost $69.30 $83.40 $81.10 Additional data concerning these products are listed below Mixing minutes per unit Selling price per unit Variable selling cost per unit 2.20 2.70 $ 2.50 Monthly demand in units 1.00 1.00 0.30 $74.00 96.40 89.90 2,400 4,400 2,400 The mixing machines are potentially the constraint in the production facility. A total of 7,420 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? Total minutes required b. How much of each product should be produced to maximize net operating income? (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.) Optimal productionExplanation / Answer
Glocker Company
Products
A
B
C
Total
monthly demand in units
2,400
4,400
2,400
9,200
mixing minutes per unit
1
1
0.3
total mixing minutes needed
2,400
4,400
720
7,520
Since product C is ranked higher in terms of contribution margin per minute, the limited available 7,420 minutes per month are to be allocated to products as follows,
Product C-
Number of units 2,400
Minutes needed 720 (@ 0.30 hours per minute)
Available minutes 7,420
Remaining minutes for products A and B = 7,420 – 720 = 6,700
The product with second ranking is B
Available minutes 6,700
Number of units of 4,400
Minutes needed 4,400 (4,400 x 1.00 minutes)
Available minutes 2,300
The product with least ranking is A
Available minutes 2,300
Number of units 2,400
Minutes needed 2,400 (2,400 x 1.00 minute)
Remaining/(shortage) minutes (100)
Since the available minutes are in shortage,
The number of units of product A that can be produced with 2,300 minutes is 2,300 units (2,300 minutes/1 minute).
Hence the optimal product mix is,
optimal production
A
B
C
2,300 units
4,400 units
2,400 units
Determination of contribution margin per unit and per minute:
Products
A
B
C
selling price
$74.00
$96.40
$89.90
Direct materials
$34.40
$50.90
$57.30
Direct labor
$21.80
$24.40
$15.20
Variable overhead
$1.60
$1.00
$0.90
Variable selling cost
$2.20
$2.70
$2.50
Total variable cost per unit
$60
$79
$75.90
Contribution margin per unit
$14
$17.40
$14
mixing minutes per unit
$1.00
$1.00
$0.30
Contribution margin per minute
$14.00
$17.40
$46.67
Ranking
III
II
I
Note: Contribution margin per unit = (contribution margin per unit)/number of mixing minutes per unit
Since the mixing minutes are in shortage for product A, the contribution margin per minute of product A becomes the amount the company should be willing to pay for additional hour of mixing machine time.
The contribution margin per minute for product A $14
An additional hour (60 minutes) requires $14 x 60 = $840
Hence, the company should be willing to pay $840 for an additional hour of mixing machine time.
Products
A
B
C
Total
monthly demand in units
2,400
4,400
2,400
9,200
mixing minutes per unit
1
1
0.3
total mixing minutes needed
2,400
4,400
720
7,520
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