Question
In: Accounting
TB Problem Qu. 12-195 Glover Company makes three products ... Glover Company makes three products in...
TB Problem Qu. 12-195 Glover Company makes three products ...
Glover Company makes three products in a single facility. These products have the following unit product costs:
| Product | ||||||
| A | B | C | ||||
| Direct materials | $ | 33.60 | $ | 50.10 | $ | 56.50 |
| Direct labor | 21.00 | 23.60 | 14.40 | |||
| Variable manufacturing overhead | 2.00 | 1.40 | 0.10 | |||
| Fixed manufacturing overhead | 12.70 | 8.30 | 8.90 | |||
| Unit product cost | $ | 69.30 | $ | 83.40 | $ | 79.90 |
Additional data concerning these products are listed below.
| Product | ||||||
| A | B | C | ||||
| Mixing minutes per unit | 2.00 | 0.40 | 0.30 | |||
| Selling price per unit | $ | 66.00 | $ | 88.40 | $ | 81.90 |
| Variable selling cost per unit | $ | 1.40 | $ | 1.90 | $ | 1.70 |
| Monthly demand in units | 2,800 | 4,100 | 2,100 | |||
The mixing machines are potentially the constraint in the production facility. A total of 7,770 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?
Solutions
Expert Solution
a) minutes of mixing machine time would be required to satisfy demand for all three products
| Particulars | Monthly demand in units (a) | Mixing minutes per unit (b) | Mixing minutes required (axb) |
| Product A | 2,800 | 2.00 | 5600 |
| Product B | 4100 | 0.40 | 1640 |
| Product C | 2,100 | 0.30 | 630 |
| Total Minutes required | 7870 Minutes |
Total Minutes required to satisfy demand for all three products = 7,870 minutes
b)
Total 7870 minutes to satisfy demand for all three products but only 7,770 minutes available so we have allocate mixing minutes to products according their Contribution margin per minute.
| Product A | Product B | Product C | |
| Selling Price Per Unit | $ 66.00 | $ 88.40 | $ 81.90 |
| Variable Costs per Units: | |||
| Direct materials | $ 33.60 | $ 50.10 | $ 56.50 |
| Direct labor | 21.00 | 23.60 | 14.40 |
| Variable manufacturing overhead | 2.00 | 1.40 | 0.10 |
| Variable selling cost per unit | 1.40 | 1.90 | 1.70 |
| Contribution Margin (a) (Selling Price - Variable Costs) |
$ 8.00 | $ 11.40 | $ 9.20 |
| Mixing Minutes per Unit (b) | 2.00 | 0.40 | 0.30 |
| Contribution Margin per Mixing Minute (a/b) | $4.00 | $28.50 | $30.67 |
| Ranking for allocation of mixing minutes | III | II | I |
| units of each product should be produced to maximize net operating income (Note 1) | 2750 units | 4100 units | 2,100 units |
Note 1
As per Contribution Margin per Mixing Minute company should
produced Product C first, then Product B and in last Product C.
Hence Available minutes for Product C is (7770 - 630-1640) = 5500
minutes
means 5500/2 = 2750 units of product C may be produced
C)
company Should willing to pay for one additional hour
= Contribution Margin per Mixing Minute of Product A x 60
minutes
= $4.00 x 60
= $240
ekkarill92 answered 1 year agoRelated Solutions
Glover Company makes three products in a single facility. These products have the following unit product...
Glover Company makes three products in a single facility. These
products have the following unit product costs:
Product
A
B
C
Direct materials
$
35.00
$
51.50
$
57.90
Direct labor
22.40
25.00
15.80
Variable manufacturing overhead
2.20
1.60
1.50
Fixed manufacturing overhead
12.10
7.70
8.30
Unit product cost
$
71.70
$
85.80
$
83.50
Additional data concerning these products are listed below.
Product
A
B
C
Mixing minutes per unit
1.40
0.90
0.50
Selling price per unit
$
80.00...
Glover Company makes three products in a single facility. These products have the following unit product...
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...
Glover Company makes three products in a single facility. These products have the following unit product...
Glover Company makes three products in a single facility. These
products have the following unit product costs:
Product
A
B
C
Direct materials
$
15.80
$
11.00
$
14.10
Direct labor
19.10
17.20
20.30
Variable manufacturing overhead
2.60
3.10
3.30
Fixed manufacturing overhead
21.60
24.10
31.30
Unit product cost
$
59.10
$
55.40
$
69.00
Additional data concerning these products are listed below.
Product
A
B
C
Mixing minutes per unit
3.30
2.60
3.10
Selling price per unit
$
74.30...
Glover Company makes three products in a single facility with the following information: A B C...
Glover Company makes three products in a single facility with
the following information:
A
B
C
Selling Price per unit
$85.00
$97.00
$91.00
Direct Materials
16.00
11.00
14.00
Direct Labor
19.00
17.00
20.00
Variable Manufacturing
3.0
2.5
4.0
Fixed Manufacturing
22.00
24.00
30.00
Variable Selling Cost
3.00
2.50
1.90
Mixing Minutes / Unit
4.0
2.5
3.0
Monthly demand (units)
1,500
2,000
500
**The company only has 10,500 minutes available per month to mix
these products**
Calculate the contribution margin per...
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Units produced
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Units sold
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Selling price per unit
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