Question

In: Accounting

Holton Company makes three products in a single facility. Data concerning these products follow: Product A...

Holton Company makes three products in a single facility. Data concerning these products follow: Product A B C Selling price per unit $ 137.10 $ 74.80 $ 167.60 Direct materials $ 59.70 $ 41.70 $ 100.70 Direct labor $ 43.00 $ 13.30 $ 29.50 Variable manufacturing overhead $ 8.20 $ 4.30 $ 13.80 Variable selling cost per unit $ 15.20 $ 3.10 $ 8.50 Mixing minutes per unit 26.90 2.00 2.00 Monthly demand in units 3,000 1,000 2,000 The mixing machines are potentially the constraint in the production facility. A total of 14,000 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? 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?

Solutions

Expert Solution

a.Total Mixing machine time required = 3000*26.9 + 2000*2+1000*2
86700 Minutes
The products should be produced on the basis of contribution margin per minute of mixing machine
A B C
Selling price 137.1 74.8 167.6
Variable costs
Direct material 59.7 41.7 100.7
Direct Labor 43 13.3 29.5
Variable manufacturing overhead 8.2 4.3 13.8
Variable selling cost 15.2 3.1 8.5
Contribution Margin per Unit 11 12.4 15.1
Milling machine minutes per unit 26.9 2 2
Contribution Margin per Minute 0.409 6.2 7.55
Production Schedule
Product Units Minutes per unit Total Minutes
A 297.4 26.9 8000
B 2000 2 4000
C 1000 2 2000
Total 14000
c.Amount per additional hour = Contribution margin = 0.409*60 = $24.54
As additional hour will be used to produce A

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