Question

Hudson Corporation, a Denver manufacturer produces three products and has provided the following information relating to its selling prices and unit costs for the three products.

	Product	Product	Product
	A	B	C
Selling price	$50	$80	$70
Variable costs	$40	$50	$55
Fixed costs	$15	$20	$12
Milling machine time (minutes)	4	2	5

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

Demand for the three products exceeds the company's production capacity due to the milling machine's availability with only 2,400 minutes of machine availabe this week.

Given the milling machine constraint, rank the products by profitability. Enter the product letter in the answer box.

Most profitable

Profitable

Least profitable

Assuming that there is still unfilled demand for the most profitable product above, up to how much should the company be willing to pay for an additional hour of milling machine time? (Enter your answer in the answer box as a whole number, no decimals or dollar signs).

Answer 1

	Product A	Product B	Product C
Sales Revenue	50	80	70
Less: Variable costs	40	50	55
Contribution Margin per unit	10	30	15
Machine minutes per unit	4	2	5
Contribution Margin per minute	2.5	15	3
Ranking will be on the basis of contribution margin per unit of constraint i.e. milling machine minute
Most profitable	Product B
Profitable	Product C
Least profitable	Product A
Amount for additional hour = Contribution Margin per hour
=15*60 = $900