Question

product costs: Product A Product B Product C $32.00 $40.00 Direct material $42.00 22.00 20.00 Direct labor 16.00 Variable manufacturing overhead 6.00 8.00 15.00 29.00 38.00 Fixed manufacturing overhead 8.00 $89.00 $106.00 Unit cost $101.00 Product B Product C 2 Additional data concerning these products are listed below: Product A Mixing minutes per unit 3 Selling price per unit $105.00 Variable selling cost per unit $10.00 Monthly demand in units 5,500 $124.00 130.00 $8.00 $9.00 4,300 3.800 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.

Answer 1

Solution:

1.)

Required minutes of mixing machine time = Mixing machine time for product A + Product B + Product C

= (5,500 units × 3 minutes) + (4,300 units × 4 minutes) +(3,800 units × 2 minutes)

= 16,500 minutes + 17,200 minutes + 7,600 minutes

= 41,300 minutes

41,300 minutes of mixing machine time would be required to satisfy the demand for all three product .

2.)

Computation contribution margin of individual product:

Products	A	B	C
Selling price	$105	$124	$130
Less: variable cost (DM + DL + V. MOH)	-$73	-$60	-$68
Contribution margin (a)	$32	$64	$62
Mixing minutes per unit (b)	3	4	2
Contribution margin per unit (a) ÷ (b)	$10.67	$16	$31

3.)

If only 40,000 minutes are available, the whole of product A 5500 units and product B 4300 units and only 3150 units of product C shall be produced.

= (5,500 units × 3 minutes) + (4,300 units × 4) + (3,150 units × 2 minutes)

= 16,500 minutes + 17,200 minutes ) + 6,300 minutes balance

= 40,000 minutes

4.)

Yes, there is unmet demand for product C. It is 650 units (3,800 units - 3,150 units)

5.)

Rutro should be willing to pay contribution amount less variable selling expenses per unit for unmet demand that is equal to $38,350 [($68 - $9) × 650 units] with respect to unmet demand for product C.

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