Question

Information regarding the selling prices and unit costs of three products is as follows:

	Product
	F		G		H
Selling price	$	55	$	35	$	65
Variable costs	$	40	$	30	$	45
Fixed costs	$	15	$	4	$	12
Milling machine time (minutes)		10		2		4

Fixed costs are applied to the products on the basis of direct labor hours.

Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,600 minutes of milling machine time available this week.

Required:

Given the milling machine constraint, what should the company focus on to make the production decision?

Based on your answer to part (a), calculate that amount for each product.

Which product should be emphasized?

a.	The production decision should be made by analyzing the
b.	Based on your answer to part (a), calculate that amount for each product:
		Product F
		Product G
		Product H
c.	Product that should be emphasized

Answer 1

Solution a:

The production decision should be made by analyzing the contribution margin earned per minute of milling machine time.

Solution b:

Computation of contribution margin per minute
Particulars	Product F	Product G	Product H
Selling price per unit	55	35	65
Variable cost per unit	40	30	45
Contribution margin per unit	$15.00	$5.00	$20.00
Milling machine time (Minutes)	10	2	4
Contribution margin per pound of material	$1.50	$2.50	$5.00
Rank	3	2	1

Solution c:

Product H should be emphasized.