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Glocker Company makes three products in a single facility. These products have the following unit product costs: |
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Product |
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| A | B | C | |||||||
| Direct materials | $ | 33.20 | $ | 49.70 | $ | 56.10 | |||
| Direct labor | $ | 20.60 | $ | 23.20 | $ | 14.00 | |||
| Variable manufacturing overhead | $ | 1.60 | $ | 1.00 | $ | 0.50 | |||
| Fixed manufacturing overhead | 13.10 | 8.70 | 9.30 | ||||||
| Unit product cost | $68.50 | $82.60 | $79.90 | ||||||
| Additional data concerning these products are listed below. | |||||||||
| Mixing minutes per unit | 1.60 | 0.80 | 0.10 | ||||||
| Selling price per unit | $ | 62.00 | $ | 84.40 | $ | 77.90 | |||
| Variable selling cost per unit | $ | 1.00 | $ | 1.50 | $ | 1.90 | |||
| Monthly demand in units | 2,400 | 3,700 | 1,700 | ||||||
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The mixing machines are potentially the constraint in the production facility. A total of 6,870 minutes are available per month on these machines. Direct labor is a variable cost in this company. |
| Required: | |
| a. |
How many minutes of mixing machine time would be required to satisfy demand for all three products? |
| b. |
How much of each product should be produced to maximize net operating income? (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.) |
| c. |
Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round your answer to 2 decimal places.) |
| A) Calculation of Mixting time reuire | |||
| Product | Units | Time/Unit | Total Time |
| A | 2400 | 1.6 | 3840 |
| B | 3700 | 0.8 | 2960 |
| C | 1700 | 0.1 | 170 |
| Total Time | 6970 | ||
| B) Computation of Unit to be produced to get maximum income | ||||
| Contrubution/Min | A | B | C | |
| Selling Price | 62 | 84.4 | 77.9 | |
| Less | Material Cost | 33.2 | 49.7 | 56.1 |
| Labour Cost | 20.6 | 23.2 | 14 | |
| Variable manufacturing Cost | 1.6 | 1 | 0.5 | |
| Variable Selling Cost | 1 | 1.5 | 1.9 | |
| Contribution /Unit | 5.6 | 9 | 5.4 | |
| Mixing Min/Unit | 1.6 | 0.8 | 0.1 | |
| Contribution/Min | 3.5 | 11.25 | 54 | |
| Rank | III | II | I | |
| Time Utilised | 3740 | 2960 | 170 | |
| Untis produced | 2338 | 3700 | 1700 | |
| C) Contribution per Minute= $3.5 |
| Contribution in 1 Hour ( $3.5*60)=$210 |
| Hence for additional 1 hour , maximum $210 can be willing to pay |
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