Question

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

Answer 1

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

So answer is c) $537624