Question

The constraint at Rauchwerger Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: WX KD FS Selling price per unit $ 334.99 $ 228.27 $ 199.02 Variable cost per unit $ 259.64 $ 173.46 $ 159.99 Minutes on the constraint 5.60 3.90 3.60 Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? (Round your intermediate calculations to 2 decimal places.)

• $75.35 per minute

• $14.05 per minute

• $39.03 per minute

• $10.84 per minute

Answer 1

Solution:

Option (D). $10.84 per minute is correct.

Product WX:

($334.99 - $259.64) / 5.60.

= $13.46

Product WX has profitability of $13.46 per min on the constrained resource.

Product KD:

= ($542.66 - $173.46) / 3.90

= $94.67

Product KD has profitability of $94.67 per min on the constrained resource.

Product FS:

= ($199.02 - $159.99) / 3.60

= $10.84

Product WX has profitability of $10.84 per min on the constrained resource.

Therefore the company should be willing to pay up to $10.84 per minute.

.

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