5. Gloddy Company makes three products in a single facility. These products have
ID: 2490650 • Letter: 5
Question
5. Gloddy Company makes three products in a single facility. These products have the following unit product costs:
Products
A B C
Direct material $24.90 $25.70 $26.60
Direct labor (variable) $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 $73.30 $66.40
Additional data concerning these products are listed below:
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 maximum demand in units 1,000 3,000 3,000
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.
a. How many minutes of mixing machine time would be required to satisfy demand for all three products?
b. How much of each product (rounded) should be produced to maximize net operating income?
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?
Explanation / Answer
A B C Total SP per unit 71.5 87.9 83 Less:variable manufacturing cost 40.7 45.6 45.4 Less:variable selling cost 2.3 1.9 3.8 Contribution per unit 28.5 40.4 33.8 hr per unit 2.5 1.7 1.6 Contribution per hour 11.4 23.76471 21.125 rank 3 1 2 a no of units 1000 3000 3000 hr per unit 2.5 1.7 1.6 total hours 2500 5100 4800 12400 b Contribution per hour 11.4 23.76471 21.125 hour allocated 900 5100 4800 units 360 3000 3000 c For additional one hour company can pay upto $ 23.77 per hour considering the best use of resources
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