Question

Bruce Corporation makes four products in a single facility. These products have the following unit product costs: Products A B C D Direct materials $ 14.50 $ 10.40 $ 11.20 $ 10.80 Direct labor 19.60 27.60 33.80 40.60 Variable manufacturing overhead 4.50 2.90 2.80 3.40 Fixed manufacturing overhead 26.70 35.00 26.80 37.40 Unit product cost 65.30 75.90 74.60 92.20 Additional data concerning these products are listed below. Products A B C D Grinding minutes per unit 4.00 5.50 4.50 3.60 Selling price per unit $ 76.30 $ 93.70 $ 87.60 $ 104.40 Variable selling cost per unit $ 2.40 $ 1.40 $ 3.50 $ 1.80 Monthly demand in units 4,200 4,200 3,200 2,200 The grinding machines are potentially the constraint in the production facility. A total of 61,900 minutes are available per month on these machines. Direct labor is a variable cost in this company. Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round your intermediate calculations to 2 decimal places.)

Answer 1

	Product A	Product B	Product C	Product D
Selling price	$76.30	$93.70	$87.60	$104.40
Less: Variable costs:
Direct material	14.50	10.40	11.20	10.80
Direct labor	19.60	27.60	33.80	40.60
Variable manufacturing overhead	4.50	2.90	2.80	3.40
Variable selling cost	2.40	1.40	3.50	1.80
Total variable costs	41	42.3	51.3	56.6
Contribution margin per unit	35.3	51.4	36.3	47.8
Grinding minutes per unit	4	5.50	4.50	3.60
Contribution margin per grinding minute	$8.83	$9.35	$8.07	$13.28

	Total Minutes required	Total Minutes available
Product D (2,200*3.60)	7,920	7,920
Product B (4,200*5.50)	23,100	23,100
Product A (4,200*4)	16,800	16,800
Product C (3,200*4.50)	14,400	14,080 (61,900-47,820)
Total	62,220	61,900

Hence, as per above results since Product C requires additional minutes the company shall be willing to pay for one additional grinding minute is $8.07