Question

Brissett Corporation makes three products that use the current constraint, which is a particular type of machine. Data concerning those products appear below:

	GK		LQ		XK
Selling price per unit	$	326.13	$	543.39	$	520.00
Variable cost per unit	$	252.04	$	420.85	$	397.70
Time on the constraint (minutes)		3.90		7.90		8.00

Required:

a. Rank the products in order of their current profitability from the most profitable to the least profitable. In other words, rank the products in the order in which they should be emphasized.

b. Assume that sufficient constraint time is available 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 answer to 2 decimal places.)

Answer 1

1
	GK	LQ	XK
Selling price per unit	326.13	543.39	520.00
Less: Variable cost per unit	252.04	420.85	397.70
Contribution margin per unit	74.09	122.54	122.30
Minutes per unit	3.90	7.90	8.00
Contribution margin per minute	19.00	15.51	15.29
GK - Rank 1
LQ - Rank 2
XK - Rank 3
2
Maximum amount to be paid is the contribution margin per minute of least profitable product
Maximum amount = $15.29