Question

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

	Products
	A				B				C				D
Direct materials	$	15.00			$	10.90			$	11.70			$	11.30
Direct labor		20.10				28.10				34.30				41.10
Variable manufacturing overhead		5.00				3.40				3.30				3.90
Fixed manufacturing overhead		27.20				35.50				27.30				37.90
Unit product cost	$	67.30			$	77.90			$	76.60			$	94.20

Additional data concerning these products are listed below.

	Products
	A				B				C				D
Grinding minutes per unit		3.80				5.30				4.30				3.40
Selling price per unit	$	76.80			$	94.20			$	88.10			$	104.90
Variable selling cost per unit	$	2.90			$	1.90			$	4.00			$	2.30
Monthly demand in units		4,280				4,280				3,280				2,280

The grinding machines are the constraint in the production facility. A total of 55,000 minutes is available per month on these machines.
Direct labor is a variable cost in this company.

Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round off to the nearest whole cent.)

8.09?

8.12?

11.88?

36.04?

Answer 1

Particulars	Product A	Product B	Product C	Product D
Selling price per unit	76.8	94.2	88.1	104.9
Less: Variable cost
Direct Materials Costs	15	10.9	11.7	11.3
Direct labor Costs	20.1	28.1	34.3	41.4
Variable Manufacturing overhead	5	3.4	3.3	3.9
Variable Selling Cost per unit	2.9	1.9	4	2.3
Contribution margin per unit	33.8	49.9	34.8	46
/ Grinding minutes per unit	3.8	5.3	4.3	3.4
Contribution per minute	8.89	9.42	8.09	13.53
Ranking	III	II	IV	I
Company Willing to pay for best use =	$ 8.09	Option (a) is Correct