\"Whelchel Products Inc. makes two products — K12C and R25O. Product K12C\'s sel
ID: 2524715 • Letter: #
Question
"Whelchel Products Inc. makes two products—K12C and R25O. Product K12C's selling price is $72.00 and its unit variable cost is $43.20. Product R25O's selling price is $235.00 and its unit variable cost is $188.00. The monthly demand is 1,140 units for product K12C and 580 units for R25O. The constrained resource is a particular machine that is available for 11,700 minutes each month. Each unit of product K12C requires 7 minutes on this machine and each unit of product R25O requires 15 minutes on this machine.
The company is considering launching a new product that would have a variable cost of $142.00 per unit and no avoidable fixed costs. It would require 16 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:"
a. $192.08
b. $201.68
c. $153.08
d. $150.48
Explanation / Answer
Answer is 192.08 Explanation Contribution margin per minute: Product K12C Product R25O Selling price 72 235 Less: variable cost 43.2 188 Contribution margin per unit 28.8 47 Divide: Minute of machine 7 15 Contribution margin per hour 4.114 3.133 Therefore, minimum acceptable Contribution per min. is $ 3.133 Hence, The minimum Acceptable price: Cost per unit 142 Add: Contribution (3.133*16) 50.128 Minimum Acceptable price 192.02
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