Question

Weiss Enterprises makes three products in a single facility. Data concerning these products follow:

	Product
	A		B		C
Selling price per unit	$	90.90	$	73.00	$	82.30
Direct materials	$	39.60	$	40.70	$	49.50
Direct labor	$	28.60	$	13.10	$	9.60
Variable manufacturing overhead	$	5.50	$	4.50	$	4.50
Variable selling cost per unit	$	4.20	$	3.30	$	2.70
Mixing minutes per unit		7.50		1.00		1.00
Monthly demand in units		3,000		1,000		2,000

The mixing machines are potentially the constraint in the production facility. A total of 14,000 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?

b. How much of each product 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?

Answer 1

Answer a:

Total minutes required = (7.5 * 3000) + (1 * 1000) + (1 * 2000)

= 25.500 minutes

Answer b:

	Product A	Product B	Product C
Selling price	$    90.90	$    73.00	$   82.30
Variable Cost	$    77.90	$    61.60	$   66.30
Contribution per unit	$    13.00	$    11.40	$   16.00
Number of minutes per unit	7.50	1.00	1.00
Contribution per minute	$      1.73	$    11.40	$   16.00
Rank	III	II	I

and,

	Hours per unit	Units	Total Hours
Product A	7.50	1,467	$     11,000
Product B	1.00	1,000	$       1,000
Product C	1.00	2,000	$       2,000
Total Hours			$    14,000

Answer c:

The company should be willing to pay the amount of contribution per minute of product A, i.e.. $ 1.73.

In case of any doubt, please comment.