Bacon Company makes four products in a single facility. These
products have the following unit product costs:
|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.
|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.)
|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|
|Company Willing to pay for best use =||$ 8.09||Option (a) is Correct|
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