Question

Garson, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:

	Product
	F		G		H
Selling price	$	60	$	40	$	70
Variable costs	$	25	$	15	$	30
Fixed costs	$	50	$	5	$	47
Milling machine time (minutes)		10		5		5

Fixed costs are applied to the products on the basis of direct labor hours.

Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,700 minutes of milling machine time available this week.

Required:

a. Given the milling machine constraint, what should the company focus on to make the production decision?

b. Based on your answer to part (a), calculate that amount for each product.

c. Which product should be emphasized?

Answer 1

a.	contribution margin per milling machine time
b)	product F		3.5
	product G		5
	product H		8
c)	product H should be emphasized
	working note for B
					F	G	H
	Selling price				60	40	70
	Variable costs				25	15	30
	contribution per unit				35	25	40
	milling machine time				10	5	5
	contribution per milling machinet time				3.5	5	8