Question

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

	Product
	A			B			C
Direct materials	$	33.90		$	50.40		$	56.80
Direct labor	$	21.30		$	23.90		$	14.70
Variable manufacturing overhead	$	2.30		$	1.70		$	0.40
Fixed manufacturing overhead		6.40			4.00			4.60
Unit product cost		$63.90			$80.00			$76.50
Additional data concerning these products are listed below.
Mixing minutes per unit		1.10			0.70			0.20
Selling price per unit	$	69.00		$	91.40		$	84.90
Variable selling cost per unit	$	1.70		$	2.20		$	2.00
Monthly demand in units		3,100			4,400			2,400

The mixing machines are potentially the constraint in the production facility. A total of 6,870 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? (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.)

      

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? (Round your answer to 2 decimal places.)

      

Answer 1

Answer a.
	Mach. Minutes Reqd. Per Unit	Demand in Units	Total Mach. Minutes Required
Product A	1.10	3,100	3,410
Product B	0.70	4,400	3,080
Product C	0.20	2,400	480
Total Direct Labor Hours Required			6,970
Answer b.
	Product A	Product B	Product C
Selling Price per Units	69.00	91.40	84.90
Variable Costs Per Unit:
Direct materials	33.90	50.40	56.80
Direct Labor	21.30	23.90	14.70
Variable MOH	2.30	1.70	0.40
Variable Selling Cost	1.70	2.20	2.00
Total Variable Cost	59.20	78.20	73.90
Contribution Margin	9.80	13.20	11.00
Mixing Minutes per Unit	1.10	0.70	0.20
Contribution Margin per Direct Labor Hour	8.91	18.86	55.00
Ranking	III	II	I
Calculation of No of Units Produced by available Machine Minutes:
	Quantity	Mach. Minutes per Unit	Total Machine Minutes	Balance of Mach. Minutes
Total Machine Minutes available				6,870
Product C Produced	2,400	0.20	480.00	6,390.00
Product B Produced	4,400	0.70	3,080.00	3,310.00
Product A Produced	3,009	1.10	3,309.90	0.10
Additional Machine Minutes Required
For Product A - (91 Units X 1.10 DLH) - 0.10	100.00
Calculation of Maximum Price to be Paid for 100 Minutes = Contribution Margin on Sale of 91 Units of Product A
Contribution on Sale of 91 Units - Product A - $9.80 X 91 Units	891.80
Maximum Cost per Hour - $891.80 X 60/100	535.08