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

Homework Answers

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

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