12-10 : Block Corporation makes three products that use the current constraint,

Question

12-10 :

Block Corporation makes three products that use the current constraint, which is a particular type of machine. Data concerning those products appear below:

Rank the products in order of their current profitability from the most profitable to the least profitable. In other words, rank the products in the order in which they should be emphasized. (Round your intermediate calculations to 2 decimal places.)

Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? (Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

ZA JK DH   Selling price per unit $ 326.01 $ 543.27 $ 514.00   Variable cost per unit $ 252.00 $ 420.81 $ 397.66   Time on the constraint (minutes) 4.50 8.40 8.00

Explanation / Answer

Solution:

1) Ranking of the products in order of their current profitability

ZA

JK

DH

  Selling price per unit

$326.01

$543.27

$514.00

  Variable cost per unit

$252.00

$420.81

$397.66

Contribution Margin Per Unit

(Selling Price - Variable Cost)

$74.01

$122.46

$116.34

  Time on the constraint (minutes)

4.5

8.4

8

Contribution Margin Per minute per unit

(Contribution Margin per unit / time in minutes required per unit)

$16.45

$14.58

$14.54

Ranking

I

II

III

2)

ZA

JK

DH

  Selling price per unit

$326.01

$543.27

$514.00

  Variable cost per unit

$252.00

$420.81

$397.66

Contribution Margin Per Unit (Selling Price - Variable Cost)

$74.01

$122.46

$116.34

Company should be willing to pay to acquire more of the constraints resource is the contribution margin of least profitable product because there is no constraints (limiting factor) to satisfy demand.

Maximum Amount $74.01

ZA

JK

DH

  Selling price per unit

$326.01

$543.27

$514.00

  Variable cost per unit

$252.00

$420.81

$397.66

Contribution Margin Per Unit

(Selling Price - Variable Cost)

$74.01

$122.46

$116.34

  Time on the constraint (minutes)

4.5

8.4

8

Contribution Margin Per minute per unit

(Contribution Margin per unit / time in minutes required per unit)

$16.45

$14.58

$14.54

Ranking

I

II

III

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