Question

2. Glowster Company makes three products in a single facility. These products have the following unit product costs: Products B A 16.20 Direct Materials 13.50 17.60 Direct Labor 18.00 18.50 14.10 Variable Manufacturing Overhead Fixed Manufacturing Overhead 3.60 3.60 3.10 16.60 8.50 11.60 Unit Product Cost 48.20 42.30 54.40 Additional data concerning these products are listed below: Products C A В Mixing minutes per unit Selling price per unit Variable selling cost per unit Monthly demand in units 3.30 5.10 3.80 59.30 73.20 64.60 1.50 1.90 2.20 1,000 1,000 4,000 The mixing machines are potentially the constraint in the production facility. A total of 27,400 minutes are available per month on these machines. Direct labor is a variable cost in this company. Required: a. How many minutes of mixing machine time would be required to satisfy demand for all three products? b. How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.) C. Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round off to the nearest whole cent.)

Answer 1

a.Time required
Product	Demand	Minutes per unit	Total Minutes required
A	1000	3.3	3300
B	1000	3.8	3800
C	4000	5.1	20400
		Total Required	27,500
i.e. 27,500 minutes
b.The products should be produced in the order of contribution margin per minute
	A	B	C
Selling price per unit	59.3	73.2	64.6
Direct material	13.5	16.2	17.6
Direct Labor	14.1	18	18.5
Variable overhead	3.1	3.6	3.6
Variable selling cost	1.9	2.2	1.5
Contribution Margin per Unit	26.7	33.2	23.4
Minutes per unit	3.3	3.8	5.1
Contribution margin per Minute'	8.090909091	8.736842105	4.588235294
Production Schedule
Product	Production Units	Minutes per unit	Total Minutes required
A	1000	3.3	3300
B	1000	3.8	3800
C	3,980.39	5.1	20,300
		Total Required	27,400
c.Amount = Contribution margin per hour = 4.5882*60 = $275.29