Question

Gluth Company makes three paint products in a single facility. These products are produced and sold in 5 gallon units. Each has the following unit product costs: Products A B C Direct materials ......................................... $22.50 $22.40 $29.20 Direct labor ................................................ 13.60 11.40 12.50 Variable manufacturing overhead ............. 3.00 3.40 4.50 Total variable unit product cost ................. $39.10 $37.20 $46.20 Additional data concerning these products are listed below. Products A B C Mixing minutes per unit.............................. 3.30 1.70 1.80 Selling price per unit ................................... $84.70 $76.10 $87.50 Variable selling cost per unit ...................... $1.80 $2.40 $2.90 Monthly demand in units ............................ 4,000 2,000 4,000 Mixing machine time is limited in the production facility. A total of 21,000 minutes are available per month on these machines. Direct labor is a variable cost in this company. Fixed manufacturing overhead is $155,000 and fixed selling & administrative expenses are $62,000 per month. Required: a. How many minutes of mixing machine time would be required to satisfy demand for all three products? (1 extra credit point) b. With its existing facilities, what is the maximum operating income Gluth can earn each month? (1 extra credit point) c. A local company has additional mixing machine time available and is willing to rent time on one of its machines so that Gluth can satisfy customer demand for all products. The rental charge will cover all product related costs except direct materials; which must be provided by Gluth. Assuming Gluth has used its mixing machines in the most optimal fashion, what is the maximum amount they should be willing to pay the outside company for one additional hour of mixing machine time so as to not sell product at a loss? Round to the near

Answer 1