Your Company makes three products in a single facility. These products have the
ID: 2454489 • Letter: Y
Question
Your Company makes three products in a single facility. These products have the following unit product costs:
Product A Product B Product C
Direct materials $24.90 $25.70 $26.60
Direct labor 13.30 17.10 15.70
Variable manufacturing overhead 2.50 2.80 3.10
Fixed manufacturing overhead 19.80 27.70 21.00
Unit product cost $60.50 $73.70 $66.40
Additional data concerning these products are listed below:
Product A Product B Product C
Mixing minutes per unit 2.50 1.70 1.60
Selling price per unit $71.50 $87.90 $83.00
Variable selling cost per unit 2.30 1.90 3.80
Monthly demand in units 1000 30000 3000
The mixing machines are potentially the constraint in the production facility. A total of 10,800 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? b. How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.)
Explanation / Answer
a. No of mixing minutes required to satisfy demand of all the products Product A Product B Product C Mixing Minutes per unit 2.5 1.7 1.6 Demand 1000 30000 3000 Total Minutes Required 2500 51000 4800 2500+51000+4800 58300 Selling Price 71.5 87.9 83 b Direct Material -24.9 -17.1 -15.7 Direct Labour -13.3 -2.8 -3.1 Variable Overhead -2.5 -27.7 -21 Variable Selling Cost -2.3 -1.9 -3.8 Contribution per unit 28.5 38.4 39.4 Per Minute 2.5 1.7 1.6 Contribution per minute 11.4 22.58824 24.625 Ranking III II I Units 1835.294 4800 Minutes 3120 7680
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