Question

Glover Company makes three products in a single facility. These products have the following unit product costs:

	Product
	A		B		C
Direct materials	$	32.90	$	49.40	$	55.80
Direct labor		20.30		22.90		13.70
Variable manufacturing overhead		1.30		0.70		0.80
Fixed manufacturing overhead		13.40		9.00		9.60
Unit product cost	$	67.90	$	82.00	$	79.90

Additional data concerning these products are listed below.

	Product
	A		B		C
Mixing minutes per unit		1.30		1.10		0.30
Selling price per unit	$	59.00	$	81.40	$	74.90
Variable selling cost per unit	$	0.70	$	1.20	$	2.20
Monthly demand in units		2,100		3,400		1,400

The mixing machines are potentially the constraint in the production facility. A total of 6,790 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

The question states the limited availability of mixing time. Mixing time is a Key Factor or Limiting Factor. Our goal should be to maximize Contribution per mixing minute i.e. per Key Factor. The solution is as follows: