Question

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

	Product
	A		B		C
Direct materials	$	15.80	$	11.00	$	14.10
Direct labor		19.10		17.20		20.30
Variable manufacturing overhead		2.60		3.10		3.30
Fixed manufacturing overhead		21.60		24.10		31.30
Unit product cost	$	59.10	$	55.40	$	69.00

Additional data concerning these products are listed below.

	Product
	A		B		C
Mixing minutes per unit		3.30		2.60		3.10
Selling price per unit	$	74.30	$	66.40	$	81.00
Variable selling cost per unit	$	2.80	$	2.30	$	1.90
Monthly demand in units		2,000		1,000		1,000

The mixing machines are potentially the constraint in the production facility. A total of 10,900 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 off to the nearest whole unit.)

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 off to the nearest whole cent.)

Answer 1

Solution 1:
Minutes of mixing timerequired to satisfy demand of all products
	Minutes per unit	Demand (Units)	Total Hours Needed
A	3.30	2000	6600
B	2.60	1000	2600
C	3.10	1000	3100
Total Minutes of mixing time required			12300
Solution 2:
Computation of contribution margin per grinding minute
	A	B	C
Selling price per unit	$74.30	$66.40	$81.00
Variable costs:
Direct materials	$15.80	$11.00	$14.10
Direct labor	$19.10	$17.20	$20.30
Variable Overhead	$2.60	$3.10	$3.30
Variable selling cost	$2.80	$2.30	$1.90
Total variable costs	$40.30	$33.60	$39.60
Contribution margin per unit	$34.00	$32.80	$41.40
Mixing minutes per unit	3.30	2.60	3.10
Contribution margin per Minute	$10.30	$12.62	$13.35
Rank	3	2	1
Units of each product to be produced to maximize operating income
	Available minutes Allocated	Minutes per unit	Units to be produced
C	3100	3.10	1000
B	2600	2.60	1000
A (14000-4000-2000)	5200	3.30	1576
Solution 3:
Willing Maximum Price per hour
Contribution margin per mixing minute of Product A	$10.30
Minutes in an hour	60
Maximum Price per Hour	$618.00