Glocker Company makes three products in a single facility. These products have t
ID: 2489455 • 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 $ 33.70 $ 50.20 $ 56.60 Direct labor $ 21.10 $ 23.70 $ 14.50 Variable manufacturing overhead $ 2.10 $ 1.50 $ 0.20 Fixed manufacturing overhead 12.60 8.20 8.80 Unit product cost $69.50 $83.60 $80.10 Additional data concerning these products are listed below. Mixing minutes per unit 1.30 0.50 0.20 Selling price per unit $ 67.00 $ 89.40 $ 82.90 Variable selling cost per unit $ 1.50 $ 2.00 $ 1.80 Monthly demand in units 2,900 4,200 2,200
The mixing machines are potentially the constraint in the production facility. A total of 6,210 minutes are available per month on these machines. Direct labor is a variable cost in this company.
How many minutes of mixing machine time would be required to satisfy demand for all three products?
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.)
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.)
The mixing machines are potentially the constraint in the production facility. A total of 6,210 minutes are available per month on these machines. Direct labor is a variable cost in this company.
Explanation / Answer
(a) Minutes of mixing machine time would be required to satisfy demand for all three products :-
Product A (2900 * 1.30)
3770
Product B (4200 * 0.50)
2100
Product C (2200 * 0.20)
440
Total minutes required
6310
(b) How much of each product should be produced to maximize net operating income:-
Statement of Ranking
Product A
Product B
Product C
DM
33.70
50.2
56.60
DL
21.10
23.70
14.50
Variable mfr O/H
2.10
1.50
0.20
Variable selling cost
1.50
2
1.80
Total Variable cost per unit (A)
58.4
77.4
73.1
Selling price per unit (B)
67
89.40
82.90
Contribution per unit (C = B – A)
8.60
12
9.80
Mixing minutes per unit (D)
1.30
0.50
0.20
Contribution per minute (C/D)
6.62
24
49
Ranking
3rd
2nd
1st
We need to utilize mixing minutes according to the rankings assigned s above
Firstly we need to manufacture Product C, then Product B and in last Product A
Product C:-
Monthly Demand = 2200 units
Mixing minutes utilize = 2200 * 0.20 = 440 minutes
Balance minutes = 6210 – 440 = 5770 minutes
Product B:-
Monthly Demand = 4200 units
Mixing minutes utilize = 4200 * 0.50 = 2100 minutes
Balance minutes = 5770 – 2100 = 3670 minutes
Product A:-
Monthly Demand = 2900 units
Mixing minutes available = 3670 minutes
Product C manufacture = 3670/1.30 = 2823 units
Product A
2823 units
Product B
4200 units
Product C
2200 units
(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 :-
Pay for 1 additional hour = Contribution lost per hour
Company lost contribution in Product A
Contribution per minute in Product A = 6.62
Contribution per hour in Product A = 6.62 * 60 min = 397.20
Product A (2900 * 1.30)
3770
Product B (4200 * 0.50)
2100
Product C (2200 * 0.20)
440
Total minutes required
6310
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