Question

# River Plate Company makes four products in a single facility. These products have the following unit...

River Plate Company makes four products in a single facility. These products have the following unit product costs:

 Products A B C D Direct Materials \$14.30 \$10.20 \$11.00 \$10.60 Direct Labor \$19.40 \$27.40 \$33.60 \$40.40 Variable manufacturing overhead \$4.30 \$2.70 \$2.60 \$3.20 Fixed manufacturing overhead \$26.50 \$34.80 \$26.60 \$37.20 Unit product cost \$64.50 \$75.10 \$73.80 \$91.40

Additional data concerning these products are listed below.

 Products A B C D Processing minutes per unit 3.8 5.3 4.3 3.4 Selling price per unit \$76.10 \$93.50 \$87.40 \$104.20 Variable selling cost per unit \$2.20 \$1.20 \$3.30 \$1.60 Monthly demand in units 4,000 4,000 3,000 2,000

The processing machines are potentially the constraint in the production facility. A total of 53,600 minutes are available per month on these machines.
Direct labor is a variable cost in this company.

What’s the maximum contribution margin that can be generated?

 \$562,403 \$535,478 \$537,624 \$559,100

Contribution margin per MH

 A B C D Selling price 76.10 93.50 87.40 104.20 Variable cost 40.20 41.50 50.50 55.80 Contribution margin 35.90 52 36.90 48.40 Minute per unit 3.8 5.3 4.3 3.4 Contribution margin per minute 9.45 9.81 8.58 14.24 Rank 3 2 4 1

Optimum mix

 Minute Unit Contribution margin Product D 2000*3.4 = 6800 2000 2000*48.4 = 96800 Product B 4000*5.3 = 21200 4000 4000*52 = 208000 Product A 4000*3.8 = 15200 4000 4000*35.9 = 143600 Product C 10400 10400/4.3 = 2418 2418*36.90 = 89224 Total 537624

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