Question

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

Product

A B C
  Direct materials $ 33.80 $ 50.30 $ 56.70
  Direct labor $ 21.20 $ 23.80 $ 14.60
  Variable manufacturing overhead $ 2.20 $ 1.60 $ 0.30
  Fixed manufacturing overhead 12.50 8.10 8.70

  Unit product cost $69.70 $83.80 $80.30

  Additional data concerning these products are listed below.
  Mixing minutes per unit 1.20 0.60 0.10
  Selling price per unit $ 68.00 $ 90.40 $ 83.90
  Variable selling cost per unit $ 1.60 $ 2.10 $ 1.90
  Monthly demand in units 3,000 4,300 2,300

The mixing machines are potentially the constraint in the production facility. A total of 6,310 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

Req A:
				Product A	Product B	Product C	Total
Monthly demand				3000	4300	2300.00
Minutes required per unit				1.2	0.6	0.10
Maximum Minutes required				3600	2580	230	6410
Req B:
				Product A	Product B	Product C	Total
Selling price per unit				69.70	83.80	80.30
Less: Variable cost
Material				33.80	50.30	56.70
labour				21.20	23.80	14.60
Variable manufacturing OH				2.20	1.60	0.30
Contribution margin per unit				12.50	8.10	8.70
Minutes per unit				1.20	0.60	0.30
Contribution per minute				10.42	13.50	29.00
Ranking				III	II	I
Monthly demand				3000	4300	2300.00
Minutes required per unit				1.2	0.6	0.10
Maximum Minutes required				3600	2580	230	6410
Less: Minutes available							6310
Shortage of minutes (to be adjusted from A)				-100			100
Hours utilized in production				3500	2580	230
Divide: Minute per unit				1.2	0.6	0.1
Number of units produced				2917	4300	2300
Req C:
With additional hour, Product A shall be manufactured.
Therefore, company is ready to pay additional mounnt equivalen t to contribution perr minute earned from product A.
hence,
Additional amount per hour that can be paid is $625.20 (i.e. 60 minutes*10.42)