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	$	16.60	$	20.50	$	13.50	$	16.20
Direct labor		18.60		22.00		16.40		10.40
Variable manufacturing overhead		5.40		6.60		9.10		6.10
Fixed manufacturing overhead		28.50		15.40		15.50		17.50
Unit product cost		69.10		64.50		54.50		50.20

Additional data concerning these products are listed below.

	Products
	A		B		C		D
Grinding minutes per unit		2.50		1.60		1.20		0.80
Selling price per unit	$	83.70	$	76.10	$	72.90	$	67.60
Variable selling cost per unit	$	3.60	$	4.10	$	3.80	$	4.50
Monthly demand in units	4,000		3,000		3,000		5,000

The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

Which product makes the MOST profitable use of the grinding machines? (Round your intermediate calculations to 2 decimal places.)

A) Product C

B) Product A

C) Product B

D) Product D

Answer 1

MOST profitable use of the grinding machines = Product D

Working notes for the above answer is as under

	A	B	C	D
Selling price per unit	83.7	76.1	72.9	67.6
Less;
Direct material	16.6	20.5	13.5	16.2
Direct Labor	18.6	22	16.4	10.4
Variable manufacturing overhead per unit	5.4	6.6	9.1	6.1
Variable selling cost per unit	3.6	4.1	3.8	4.5
Contribution margin per unit	39.5	22.9	30.1	30.4
Grinding minutes per unit	2.5	1.6	1.2	0.8
Contribution margin per minute	15.8	14.31	25.08	38
Rank	3	4	2	1

Contribution margin per minute for D is higher among four machine so MOST profitable use of the grinding machines = Product D