Holvey Company makes three products in a single facility. Data concerning these

Question

Holvey Company makes three products in a single facility. Data concerning these products follow: The mixing machines are potentially the constraint in the production facility. A total of 6,300 minutes are available per month on these machines. Direct labor is a variable cost in this company Products A B C Sales price per unit $70 $92.40 $85.90 Direct Materials 34 50.50 56.90 Direct Labor 21.40 24 14.80 Variable Man. Over. 1.20 $ .60 $ .50 Var. Selling cost per unit 1.80 2.30 2.10 Mixing Minutes per unit 1.20 .80 .40 Monthly Demand in Units 2,000 4,000 2,000 Required (SHOW ALL WORK) :a. How many minutes of mixing machine time would be required to satisfy demand for all three products? b. How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.) 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 off to the nearest whole cent.) Please show all work

Explanation / Answer

PDQ Company makes three products in a single facility. Data concerning these products follow:






Products





A B C




Selling price per unit $70 $92.4 85.9




Direct Materials 34 50.5 56.9




Direct Labor 21.4 24 14.8




Variable Manufacturing Overhead 1.2 0.6 0.5




Variable Selling Cost Per Unit 1.8 2.3 2.1




Mixing Minutes per unit 1.2 0.8 0.4




Monthly demand in units 2,000 4,000 2,000













The mixing machines are potentially the constraint in the production facility. a total of 14,700 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 four products?

Demand on the mixing machine:
















Products





A B C




Mixing minutes per unit 1.2 0.8 0.4




Monthly Demand in Units 2,000 4,000 2,000




Total Minutes Required 2,400 3,200 800













Total time required for all products: 6400










b. How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.)



Optimal Production Plan





Products





A B C




Selling Price Per Unit $70.00 $92.40 $85.90




Direct Materials 34 50.5 56.9




Direct Labor 21.4 24 14.8




Variable MOH 1.2 0.6 0.5




Variable Selling Cost Per Unit 1.8 2.3 2.1




Total Variable Cost Per Unit $58.40 $77.40 $74.30




Contribution Margin Per Unit $11.60 $15.00 $11.60




Mixing Minutes per Unit 1.2 0.8 0.4




Contribution Margin Per Minute $9.67 $18.75 $29.00




Rank in Terms of Profitability 3 2 1




Optimal Production 1,916 4,000 2,000













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 off to the nearest whole cent. The company should be willing to pay up to the contribution margin per minute for the marginal job, which is $9.67.

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