Whelchel Products Inc. makes two products — K12C and R25O. Product K12C\'s selli
ID: 2573326 • Letter: W
Question
Whelchel Products Inc. makes two products—K12C and R25O. Product K12C's selling price is $88.00 and its unit variable cost is $52.80. Product R25O's selling price is $275.00 and its unit variable cost is $220.00. The monthly demand is 1,300 units for product K12C and 660 units for R25O. The constrained resource is a particular machine that is available for 13,300 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 $150.00 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: (Round Profitability Index to 2 decimals.)
a. $208.72
b. $218.32
c. $169.72
d. $167.12
Explanation / Answer
a. $208.72 Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars K12C R25O. Selling price per unit 88.00 275.00 Variable cost per unit 52.80 220.00 Contribution per unit = SP -VC 35.20 55.00 Minutes per unit 7.00 15.00 Contribution per minute 5.03 3.67 Ranking 1.00 2.00 Total minutes available 13,300.00 Total minites for K12 C = 7*1300 9,100.00 Remaining minutes for R25O 4,200.00 Minute per unit of R25O 15.00 No of unitof R25O 280.00 So for new product production of R25O would be compromised till 4200 minutes Variable cost of new product = 150.00 Minimum Contribution required = 3.67*16 58.72 minimum acceptable selling price 208.72
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