Question

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

    

	Product
	A		B		C
Direct materials	$	21.80	$	18.30	$	13.70
Direct labor		23.10		23.90		19.00
Variable manufacturing overhead		10.20		9.90		9.50
Fixed manufacturing overhead		27.50		26.20		32.70
Unit product cost	$	82.60	$	78.30	$	74.90

    

Additional data concerning these products are listed below.

        

	Product
	A		B		C
Mixing minutes per unit		7.30		7.00		7.50
Selling price per unit	$	149.20	$	150.10	$	145.30
Variable selling cost per unit	$	11.90	$	11.70	$	12.70
Monthly demand in units		1,000		3,000		2,000

    

The mixing machines are potentially the constraint in the production facility. A total of 38,700 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?

      

	Product
	A		B		C
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 nearest whole unit.)

   

	Product
	A		B		C
Optimal production

    

c.	Up to how much should the company be willing to pay for one additional minute 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.)

  

Company willing to pay

$

Answer 1

Req 1:
	PRODUCT A	PRODUCT B	PRODUCT C	TOTAL
Maximum demand in units	1000	3000	2000
Mixing time required each unit	7.3	7	7.5
Total mixing minutes required	7300	21000	15000	43300
Total Mixing minutes required for all three products: 43300 minutes

Req 2:
	PRODUCT A	PRODUCT B	PRODUCT C
Selling price per unit	$149.20	$150.10	$145.30
Less: variable cost per unit
Material	$21.80	$18.30	$13.70
Labour	$23.10	$23.90	$19.00
Variable manufacturing OH	$10.20	$9.90	$9.50
Variable Selling cost	$11.90	$11.70	$12.70
Contribution margin per unit	$82.20	$86.30	$90.40
Divide: Mixing time per unit	7.3	7	7.5
Contribution margin per Minute	11.26	12.33	12.05
Ranking	III	I	II

Maximum Minutes available of Mixing		38700
Less: Minutes used in production of Product B (7 minuteX 3000)		-21000
Available minutes		17700
Less: Minutes used in Production of Product C (7.5X 2000)		-15000
Available Minutes for production of Product A		2700
Number of units of Product A can be produced (2700/7.3): 370 units
Number of each produced for maximizing profits:
Product A: 370 Unit
Product B: 3000 Unit
Product C: 2000 Unit

Req 3:

With additional hour of labour, the firm will produce Product A:

Additonal amount per hour of mixing machine will be $675.60 per hour (i.e. $11.26 *60 mins)

This is over and above the rate already paid.