Question

MBL914N OCTOBER NOVEMBER 2014 QUESTION 2 [8 MARKS] The constraint at Maniki Inc is an expensive milling machine The three products listed below use this constrained resource ERC SCTC Selling price per unit 118 548 175 Variable cost per unit 94 431 136 Time on the constraint (minutes) 1 50 5 30 200 Required a) Rank the products in order of their current profitability from the most profitable to the least profitable in other words, rank the products in the order in which they should be emphasised (6) Show all your calculations b) . Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product Up to how much should the company be willing to pay to acquire more of the constrained resource? (2) 181

Answer 1

1 Raning of Products on profitability Selling Price per Unit Variable Costs per Unit Contribution Margin per Unit Minutes on constraint resource Contribution per machine minute Product A Product 118.00 548.00 94.00 431.00 24.00 117.00 1.50 5.30 16.00 22.08 Product C 175.00 136.00 39.00 2.00 19.50 Product B is more profitable, then Product C and then Product A. Sequance - Product B Product C Product A 2 maximum the company be willing to pay to acquire more of the constrained resource would be Contribution margin of Product A per minute of million machine used i.e $16 per minute