Question
In: Accounting
Holvey Company makes three products in a single facility. Data concerning these products follow: Selling price...
Holvey Company makes three products in a single facility. Data concerning these
products follow:
|
Selling price per unit CM ration Mixing minute per unit Monthly demand in units |
Product A $70 15% 1.20 2,000 |
Product B $95 20% 0.80 4,000 |
Product C $85 %16 0.40 2,000 |
The mixing machines are potentially the constraint in the
production facility. A total of 6,300 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? (2marks)
b. How much of each product should be produced to maximize net
operating income? (Round off to the nearest whole unit).
(3marks)
Solutions
Expert Solution
a. 6400 minutes
| Product A | Product B | Product C | Total | |
| Mixing Minute per unit | 1.2 | 0.8 | 0.4 | |
| Monthly demand | 2000 | 4000 | 2000 | |
| Total Minutes | 2400 | 3200 | 800 | 6400 |
b.
| Product A | Product B | Product C | |
| Selling Price per unit | 70 | 95 | 85 |
| Contribution Ratio | 15% | 20% | 16% |
| Contribution Margin per unit | $ 10.50 | $ 19.00 | $ 13.60 |
| Mixing Minute per unit | 1.2 | 0.8 | 0.4 |
| Contribution Margin per minute | $ 8.75 | $ 23.75 | $ 34.00 |
First of all, Product C should be made, since it has highest
contributing margin per minute, which will use 800 minutes, then
Product B should be made using 3200 minutes, remaining 2300 minutes
should be used for making Product A
Units to be produced for each product
A = 2300/1.2 = 1916
B = 4000 units
C = 2000 units
ekkarill92 answered 2 years agoRelated Solutions
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A
B
C
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$
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concerning these products follow:
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A
B
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Selling price per unit
$
91.60
$
78.20
$
125.10
Direct materials
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39.90
$
43.60
$
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Direct labor
$
28.80
$
13.90
$
20.10
Variable manufacturing overhead
$
5.60
$
4.60
$
9.40
Variable selling cost per unit
$
8.70
$
3.30
$
5.80
Mixing minutes per unit
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2.00
2.00
Monthly demand in units
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1,000
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