Hello, I need help with the following question for Managerial Accounting: Managi

Question

Hello, I need help with the following question for Managerial Accounting:

Managing a Constrained Resource Nutty Co. Gourmet Snacks makes three different kinds of snack mixes. Following is informtion about the production and costs: Mix 1 Mix 2 Mix 3 100 $ 55 $ Selling price per unit Variable cost per unit Processing time to make one unit Pounds of peanuts per one unit 150 $ 225 75 135 minutes 2.5 3.5 5.5 pounds Complete the following: 1. Each snack mix is processed on the same machine. Which snack mix would be the most profitable use of this constraint? Which would be the least profitable use of this constraint? 2. A severe shortage of peanuts has required the company to cut back its production so much that processing is no longer the constraint. Instead, production is constrained by is the total available pounds of peanuts. Which snack mix would be the most profitable use of this constraint? 3. Which snack mix has the largest contribution margin per unit? Is this the same as either part 1. or 2. Explain

Explanation / Answer

(1)

Since machine time is limited, hence the mix which provides highest contribution margin per minute will be the most profitable mix. Since contribution margin per minute is highest in case of mix 1, hence mix 1 is the most profitable mix and contribution margin per minute is lowest in case of mix 3, hence mix 3 is the least profitable mix.

(2)

Since peanut is limited, hence the mix which provides highest contribution margin per pound of peanut will be the most profitable mix. Since contribution margin per pound is highest in case of mix 2, hence mix 2 is the most profitable mix and contribution margin per pound is lowest in case of mix 3, hence mix 3 is the least profitable mix.

(3)

Mix 3 has highest contribution margin per unit. This is not same as part (1) and part (2)

Kindly give a positive rating if you are satisfied with the solution.Feel free to ask if you have any doubt. Thanks.

Mix 1 Mix 2 Mix 3 Selling price per unit (i) $100 $150 $225 Variable cost per unit (ii) $55 $75 $135 Contribution margin per unit (iii) = (i) - (ii) $45 $75 $90 Processing time to make 1 unit (iv) 1 minute 3 minute 4.5 minute Contribution margin per minute (iii)/(iv) $45 $25 $20

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