Garson, Inc. produces three products. Data concerning the selling prices and uni
ID: 2598587 • 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 2,700 minutes of milling machine time available this week.
Required:
a. Given the milling machine constraint, what should the company focus on to make the production decision?
b. Based on your answer to part (a), calculate that amount for each product.
c. Which product should be emphasized?
Product F G H Selling price $ 85 $ 65 $ 95 Variable costs $ 60 $ 50 $ 65 Fixed costs $ 25 $ 8 $ 22 Milling machine time (minutes) 20 5 5Explanation / Answer
a) The company should focus on using the available time of milling machine, of 2700 minutes for the week, in a manner that would maximise the total contribution. To achieve this, it should FOCUS on the production of that product which gives maximum contribution per minute of the milling machine time used. b) The contribution per minute of the milling machine time is worked out below: Product F G H Selling price per unit $ 85.00 $ 65.00 $ 95.00 Variable costs per unit $ 60.00 $ 50.00 $ 65.00 Contribution margin per unit $ 25.00 $ 15.00 $ 30.00 Milling machine time (minutes) $ 20.00 $ 5.00 $ 5.00 Contribution margin per minute of milling machine time 1.25 $ 3.00 $ 6.00 c) Product H should be emphasized at it gives the maximum contribution margin per minute of the milling machine time used.
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