Question

Bacon Company makes four products in a single facility. These products have the following unit product costs: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost A $14.30 19.40 4.30 26.50 $64.50 Products B C $10.20 $11.00 27.40 33.60 2.70 2.60 34.80 26.60 $75.10 $73.80 D $10.60 40.40 3.20 37.20 $91.40 Additional data concerning these products are listed below. Grinding minutes per unit Selling price per unit Variable selling cost per unit Monthly demand in units Products А в ср 3.80 5.30 4.30 3.40 $76.10 $93.50 $87.40 $104.20 $ 2.20 $ 1.20 $ 3.30 $ 1.60 4,000 4,000 3,000 2,000 The grinding machines are the constraint in the production facility. A total of 53,600 minutes is available per month on these machines. Direct labor is a variable cost in this company. Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round off to the nearest whole cent.)

Answer 1

	A	B	C	D
Selling price per unit	76.1	93.5	87.4	104.2
Direct material	14.3	10.2	11	10.6
Direct labor	19.4	27.4	33.6	40.4
Variable manufacturing overhead	4.3	2.7	2.6	3.2
Variable selling cost	2.2	1.2	3.3	1.6
Contribution Margin per unit	35.9	52	36.9	48.4
Grinding minutes per unit	3.8	5.3	4.3	3.4
Contribution Margin per minute	9.447368421	9.811320755	8.581395349	14.23529412
Products will be produced in the order of contribution margin per minute
Product Mix	Units	Minutes per unit	Total minutes
A	4000	3.8	15200
B	4000	5.3	21200
C	2418.604651	4.3	10400
D	2000	3.4	6800
		Total	53600
Hence, maximum that will be paid = contribution margin per minute of C
i.e. $8.58 per minute
Since additional capacity will be used to produce C