A B C Optimal production $___________ $____________ $_____________ Up to how muc

Question

A B C

Optimal production $___________ $____________ $_____________

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 your answer to 2 decimal places.)

Maximum amount _________________

      

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 your answer to 2 decimal places.)

Maximum amount _________________

Explanation / Answer

a)

Number of minutes of mixing machine that would be required to satisfy demand for all the three products

= 2400units x 1min/unit + 4400 units x 1min/unit + 2400units x 0.30 min/unit

= 2400 min + 4400 mins. + 720 mins

= 7520 mins

b)

The products with higher contributions per mixing minutes will be produced first.

Minutes required to produce 2400 units of product C = 720 mins.

Minutes required to produce 4400 units of B = 4400 minutes.

Balance = 7420 – (4400+720) = 2300 minutes

Number of units of A that could be produced with available mixing minutes = 2300 minutes / 1 min. Per unit = 2300 units.

Optimal production:

A = 2300 units

B = 4400 units

C = 2400 units

c)

Contribution forgone for the loss of 100 units of A = 100*$14 = $1400.

Additional minutes required to produce 100 units of A = 100

Maximum price that could be paid for additional minutes = $1400/100 = $14 per minute

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= $14/min x 60 mins = $840

Product A B C Direct materials 34.4 50.9 57.3 Direct labour 21.8 24.4 15.2 Variable manufacturing overhead 1.6 1 0.9 Variable manufacturing cost 57.8 76.3 73.4 Variable selling costs 2.2 2.7 2.5 Total variable cost per unit ($) 60 79 75.9 Selling Price per unit 74 96.4 89.9 Less: variable cost 60 79 75.9 Contribution per unit 14 17.4 14 Mixing minutes per unit 1 1 0.3 Contribution per minute ($) 14 17.4 46.67 Ranking 3 2 1

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