Question

Please show work

3. Wellington, Inc. manufactures three related products in its Colorado Springs facility. Relevant data are given below. The key material in these products is teflonium, a rare mineral of which there is currently a shortage. In the near future, only 23,000 pounds per month of teflonium will be available, at a price of $180/lb. Product A Product B Product C Selling price/unit $1,200 $1,450 $1,95 360 100 Cost/unit: Teflonium 720 Other materials 100 Direct labor 110 Variable overhead 90 20 20 Fixed OH (300% of DL) 270 330 Expected monthly demand is: A, 8,000 units; B, 4,000 units; C, 1,000 units. Required: How much of each product should Wellington produce each month while the shortage lasts? Explain.

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Firstly we have to calculate the contribution margin per pound of key material and then assign them the rankings Product B Product C 1200 1450 1950 Statement of Ranking 5 Particulars Product A 5 Selling price - Variable cost 3 Teflonium Other material o Direct Labour 1 Variable overheads 2 Contribution Margin 3 No. of Pounds of teflonium used to make one unit (360/180) 5 Contribution Margin Per Pound 6 Ranking 360 100 90 20 630 21 |(540/180) 315 1 540 120 120 20 650 3 (720/180) 7201 100 110 20 1000 216.7 3

ma Pour Particulars 1 Product A 2 Product B 3 Product C statement of optimum Product Mix Production Pounds Per Unit 8000 1000 1000 Total 16000 33000 (B.F.) 4000 23000 t in 5 Thus the final answer is No of units to be produced till shortage continues 3 Particulars Production Product A Product B 1 Product C 2 Product A 8000 1000 1000 om