Question

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

	Products
	A		B		C		D
Direct materials	$	15.80	$	19.70	$	12.70	$	15.40
Direct labor		17.80		21.20		15.60		9.60
Variable manufacturing overhead		4.60		5.80		8.30		5.30
Fixed manufacturing overhead		27.70		14.60		14.70		16.70
Unit product cost	$	65.90	$	61.30	$	51.30	$	47.00

Additional data concerning these products are listed below.

	Products
	A		B		C		D
Grinding minutes per unit		2.10		1.20		0.80		0.40
Selling price per unit	$	79.70	$	72.10	$	68.90	$	63.60
Variable selling cost per unit	$	2.80	$	3.30	$	3.00	$	3.70
Monthly demand in units	3,200		2,200		2,200		4,200

The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

Which product makes the MOST profitable use of the grinding machines? (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• Product C

• Product B

• Product D

• Product A

Answer 1

	Products
	A		B		C		D
Direct materials	$	15.80	$	19.70	$	12.70	$	15.40
Direct labor		17.80		21.20		15.60		9.60
Variable manufacturing overhead		4.60		5.80		8.30		5.30
Variable selling cost per unit		2.80		3.30		3		3.70
Unit variable cost	$	41	$	50	$	39.6	$	34

	A	B	C	D
Selling price per unit	79.70	72.10	68.90	63.60
Unit variable cost	- 41	- 50	- 39.6	- 34
Contribution margin per unit	38.7	22.10	29.3	29.6
Grinding minutes per unit	2.10	1.20	0.80	0.40
Contribution margin per Grinding minute	$18.43	$18.42	$36.63	$74

Since Contribution margin per Grinding minute is highest for product D, hence product D makes the MOST profitable use of the grinding machines.

Third option is correct.