Question

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

	Product
	A			B			C
Direct materials	$	34.90		$	51.40		$	57.80
Direct labor	$	22.30		$	24.90		$	15.70
Variable manufacturing overhead	$	2.10		$	1.50		$	1.40
Fixed manufacturing overhead		12.00			7.60			8.20
Unit product cost		$71.30			$85.40			$83.10
Additional data concerning these products are listed below.
Mixing minutes per unit		1.30			1.10			0.40
Selling price per unit	$	79.00		$	101.40		$	94.90
Variable selling cost per unit	$	2.70		$	3.20		$	3.00
Monthly demand in units		2,900			4,200			2,200
The mixing machines are potentially the constraint in the production facility. A total of 9,170 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? Total minutes required    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.) Optimal Production A B C 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.) Maximum amount__________-

      

Answer 1

a. Demand on the mixing machine:                                                                                                           

	Product
	A	B	C
Mixing minutes per unit	1.30	1.10	0.40
Monthly demand in units	2,900	4,200	2,200
Total minutes required	3,770	4,620	880

Total time required for all products: 9,270 minutes

b. Optimal Production Plan

	Product
	A	B	C
Selling price per unit	$79.00	$101.40	$94.90
Add- Direct materials	$34.90	$51.40	$57.80
Direct labor	$22.30	$24.90	$15.70
Variable manufacturing overhead	$2.10	$1.50	$1.40
Variable selling cost per unit	$2.70	$3.20	$3.00
Total variable cost per unit	$62	$81	$77.90
Contribution margin per unit	$17	$20.40	$17
Mixing minutes per unit	1.30	1.10	0.40
Contribution margin per minute	$13.08	$18.55	$42.5
Rank in terms of profitability	3	2	1
Optimal Production	2,823	4,200	2,200

c. The company should be willing to pay up to the contribution margin per unit of Product A, which is $13.08.