Glocker Company makes three products in a single facility. These products have t
ID: 2489392 • Letter: G
Question
Glocker Company makes three products in a single facility. These products have the following unit product costs: Product A B C Direct materials $ 34.60 $ 51.10 $ 57.50 Direct labor $ 22.00 $ 24.60 $ 15.40 Variable manufacturing overhead $ 1.80 $ 1.20 $ 1.10 Fixed manufacturing overhead 11.70 7.30 7.90 Unit product cost $70.10 $84.20 $81.90 Additional data concerning these products are listed below. Mixing minutes per unit 1.20 0.80 0.50 Selling price per unit $ 76.00 $ 98.40 $ 91.90 Variable selling cost per unit $ 2.40 $ 2.90 $ 2.70 Monthly demand in units 2,600 4,600 2,600 The mixing machines are potentially the constraint in the production facility. A total of 8,000 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 three products? b. How much of each product should be produced to maximize net operating income? (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar 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.)
Explanation / Answer
Minutes of mixing machine time would be required to satisfy demand for all three products:-
Product A: 1.2 minutes* 2600 units = 3120 Minutes
Product B: 4600 units* 0.8 minutes = 3680 Minutes
Product C: 2600 units* 0.5 minutes = 1300 Minutes
Total=A+B+C=8100 Minutes
Each product should be produced to maximize net operating income
Product
A
B
C
Selling price per unit
$76.00
$98.40
$91.90
Less: Variable cost
Direct materials
34.6
51.1
57.5
Direct labor
22
24.6
15.4
Variable manufacturing overhead
1.8
1.2
1.1
Variable selling cost per unit
2.4
2.9
2.7
Total Variable cost
60.8
79.8
76.7
Contribution per unit
$15.20
$18.60
$15.20
Mixing minutes per unit
1.2
0.8
0.5
Contribution per Minute
12.66666667
23.25
30.4
Ranking
III
II
I
Minutes Available
Units of C produced
2600
Time consumed
1300 Minutes
8000-1300
6700
Units of B produced
4600
Time consumed
3680 Minutes
6700-3680
3020
Units of A produced (3020/1.20)
2516.67
3020 Minutes
3020-3020
0
Product
A
B
C
Production
2516.67
4600
2600
By existing capacity company able to make full capacity of product B&C (because there income is high per minute) So for addition of one hour means 60 minutes company can pay maximum up to the income of product A which is profit per minute =15.2/1.2=12.67 / min.
Per hour 12.67*60=760.2
Product
A
B
C
Selling price per unit
$76.00
$98.40
$91.90
Less: Variable cost
Direct materials
34.6
51.1
57.5
Direct labor
22
24.6
15.4
Variable manufacturing overhead
1.8
1.2
1.1
Variable selling cost per unit
2.4
2.9
2.7
Total Variable cost
60.8
79.8
76.7
Contribution per unit
$15.20
$18.60
$15.20
Mixing minutes per unit
1.2
0.8
0.5
Contribution per Minute
12.66666667
23.25
30.4
Ranking
III
II
I
Minutes Available
Units of C produced
2600
Time consumed
1300 Minutes
8000-1300
6700
Units of B produced
4600
Time consumed
3680 Minutes
6700-3680
3020
Units of A produced (3020/1.20)
2516.67
3020 Minutes
3020-3020
0
Product
A
B
C
Production
2516.67
4600
2600
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