Glocker Company makes three products in a single facility. These products have t
ID: 2591826 • Letter: G
Question
Glocker Company makes three products in a single facility. These products have the following unit product costs $34.90 $ 51.40 $ 57.80 $ 22.30 $ 24.90 $ 15.70 Direct materials Direct labor Variable manufacturing overhead $ 2.10 $ 1.50 $ 1.40 Fixed manufacturing overhead 12.00 7.60 8.20 Unit product cost $71.30 $85.40 $83.10 Additional data concerning these products are listed below. Mixing minutes per unit Selling price per unit Variable selling cost per unit Monthly demand in units 0.40 $ 79.00 $101.40 $ 94.90 $ 2.70 3.20 3.00 2,200 1.30 1.10 2,900 4,200 The mixing machines are potentially the constraint in the production facility. A total of 9,170 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 production 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 your answer to 2 decimal places.) Maximum amountExplanation / Answer
Glocker Company
Products
A
B
C
Total
monthly demand in units
2,900
4,200
2,200
9,300
mixing minutes per unit
1.30
1.10
0.40
total mixing minutes needed
3,770
4,620
880
9,270
Hence, 9,270 minutes of mixing machine time is needed to satisfy demand for all three products.
Since product C is ranked higher in terms of contribution margin per minute, the limited available 9,170 minutes per month are to be allocated to products as follows,
Product C-
Number of units 2,200
Minutes needed 880 (@ 0.40 minutes per unit)
Available minutes 9,170
Remaining minutes for products A and B = 9,170 – 880 = 8,290
The product with second ranking is B
Available minutes 8,290
Number of units 4,200
Minutes needed 4,620 (4,200 x 1.10 minutes)
Remaining minutes 3,670
The product with least ranking is A
Available minutes 3,670
Number of units 2,900
Minutes needed 3,770 (2,900 x 1.30 minute)
Remaining/(shortage) minutes (100)
Since the available minutes are in shortage,
The number of units of product A that can be produced with 3,670 minutes is 2,823 units (3,670 minutes/1.30 minute).
Hence the optimal product mix is,
optimal production
A
B
C
2,823 units
4,200 units
2,200 units
Determination of contribution margin per unit and per minute:
Products
A
B
C
selling price
$79.00
$101.40
$94.90
Direct materials
$34.90
$51.40
$57.80
Direct labor
$22.30
$24.90
$15.70
Variable overhead
$2.10
$1.50
$1.40
Variable selling cost
$2.70
$3.20
$3.00
Total variable cost per unit
$62
$81
$77.90
Contribution margin per unit
$17
$20.40
$17
mixing minutes per unit
$1.30
$1.10
$0.40
Contribution margin per minute
$13.08
$18.55
$42.50
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 $13.08
An additional hour (60 minutes) requires $13.08 x 60 = $784.80
Hence, the company should be willing to pay $784.80 for an additional hour of mixing machine time.
Maximum amount $784.80
Products
A
B
C
Total
monthly demand in units
2,900
4,200
2,200
9,300
mixing minutes per unit
1.30
1.10
0.40
total mixing minutes needed
3,770
4,620
880
9,270
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