Question

Brown Corporation makes four products in a single facility. These products have the following unit product costs:

	Products
	A	B	C	D
Direct materials	$13.10	$9.00	$9.80	$9.40
Direct labor	18.20	26.20	32.40	39.20
Variable manufacturing overhead	3.10	1.50	1.40	2.00
Fixed manufacturing overhead	25.30	33.60	25.40	36.00
Unit product cost	$59.70	$70.30	$69.00	$86.60

Additional data concerning these products are listed below.

	Products
	A	B	C	D
Grinding minutes per unit	2.60	3.20	3.10	2.20
Selling price per unit	$74.90	$92.30	$86.20	$103.00
Variable selling cost per unit	$ 1.00	$ .20	$ 2.10	$   .40
Monthly demand in units	2,800	2,800	1,800	2,000

The grinding machines are potentially the constraint in the production facility. A total of 25,400 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round your intermediate calculations and final answer to 2 decimal places.)

Answer 1

			A	B	C	D	Total
Selling price			74.9	92.3	86.20	103
Less: Vvraiable cost
Material			13.1	9	9.8	9.4
labour			18.2	26.2	32.40	39.2
Variable MFg OH			3.1	1.5	1.40	2
Variable selling expense			1	0.2	2.10	0.4
Contribution margin per unit			39.5	55.4	40.5	52
Divide: Grinding minutes			2.6	3.2	3.10	2.2
Contribution per grinding minute			15.19	17.31	13.06	23.64
Ranking			III	II	IV	I
Monthly demand			2800	2800	1800.00	2000
Grinding minutes per unit			2.6	3.2	3.10	2.2
Total Grinding minutes			7280	8960	5580	4400	26220
Total Available minutes							25400
Deficit to be adjusted in Product C					820.00		820
This suggests that with additional minutes available only Product C can be produced.
The company will be willing to pay contribution per minute earned from Product C
Therefore the maximum company is willing to pay is $ 13.06 per minute.