Question

Delta Corp. makes three products in a single facility. These products have the following unit product costs:

	Product I	Product 2	Product 3
Direct material	$39.25	34.60	37.25
Direct labor	20.60	17.95	17.30
Variable manufacturing overhead	5.30	6.65	10.65
Fixed manufacturing overhead	34.60	35.90	30.60
Unit cost	99.75	95.10	95.80

Additional data concerning these products are listed below:

	Product I	Product 2	Product 3
Mixing minutes per unit	6.6	4	5.2
Selling price per unit	133	121.70	127.65
Variable selling cost per unit	9.30	6.70	8
Monthly demand in units	2,395	4,790	4,125

The mixing machines are potentially the constraint in the production facility. A total of 40,000 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

Questions

1. How many minutes of mixing machine time would be required to satisfy demand for all three products?

my answer = 56,417

2. Using only the available 40,000 minutes of machine time, how much of each product should be produced to maximize net operating income? (Round down to the nearest whole units.)

my answer = Product 1: -92 Product 2: 4,790 Product 3: 4125 (not confident in these answers)

3. Is there unmet demand for product(s)? If so, how much and for which product(s)?

4. Assume there is unmet product demand. How much in total should Delta be willing to pay for extra machine time?

my answer = 532.27 (Not confident in this answer)

5. Did variable selling cost per unit figure into any of your calculations? Which ones, if any?

my answer = yes

6. Is there anything misleading about the figure given for fixed manufacturing overhead?

7. What is the significance of contribution margins with respect to question 2?

8. What is the significance of contribution margins with respect to question 4?

9. Why isn’t sales price or the difference between sales prices and the unit costs stated in the problem the best predictor of the priority in producing the products?