Question

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

	Product
	A			B			C
Direct materials	$	34.10		$	50.60		$	57.00
Direct labor	$	21.50		$	24.10		$	14.90
Variable manufacturing overhead	$	1.30		$	0.70		$	0.60
Fixed manufacturing overhead		11.20			6.80			7.40
Unit product cost		$68.10			$82.20			$79.90
Additional data concerning these products are listed below.
Mixing minutes per unit		1.30			0.90			0.30
Selling price per unit	$	71.00		$	93.40		$	86.90
Variable selling cost per unit	$	1.90		$	2.40		$	2.20
Monthly demand in units		2,100			4,100			2,100

The mixing machines are potentially the constraint in the production facility. A total of 6,950 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.) a b c ABCOptimal production :

      

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

(A) Minutes of mixing machine time would be required to satisfy demand for all three products :-

Product A (2100 * 1.30)	2730
Product B (4100 * 0.90)	3690
Product C (2100 * 0.30)	630
	7050

(B) Statement of Ranking :-

	A	B	C
SP	71	93.4	86.9
(-) Direct materials	34.1	50.6	57
(-) Direct labor	21.5	24.1	14.9
(-) Variable manufacturing overhead	1.3	0.7	0.6
Contribution per unit	14.1	18	14.4
Mixing minutes per unit	1.3	0.9	0.3
Contribution per minute	10.84615	20	48
Ranking	3rd	2nd	1st

Ranking	Product	Demand	Units Produced	Balance Minutes
1st	C	2100	(2100*0.30) =630	(6950-630) = 6320
2nd	B	4100	(4100*0.9) =3690	(6320-3690) =2630
3rd	A	2100	(2630/1.3) =2023	0

Optimal Mix:- A = 2023, B = 3690 , C = 630

(C) 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:-

Company should pay for 1 additional hour = Contribution lost per hour

Company should lost the contribution of Product A

Hence contribution per minute for Product A = 10.84615

Contribution lost per hour = 10.84615 * 60 = 650.769