Question

Bruce Corporation 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 Products A B C D $14.60 $10.50 $11.30 $10.90 19.70 27.70 33.90 40.70 4.60 3.00 2.90 3.50 26.80 35.10 26.90 37.50 65.70 76.30 75.00 92.60 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 A B C D 4.10 5.60 4.60 3.70 $76.40 $93.80 $87.70 $104.50 $ 2.50 $ 1.50 $ 3.60 $ 1.90 4,300 4,300 3,300 2,300 The grinding machines are potentially the constraint in the production facility. A total of 65,000 minutes are 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 your intermediate calculations to 2 decimal places.)

Answer 1

			A	B	C	D	Total
Selling price		76.4	93.8	87.7	104.5
Less: variable cost
Material			14.6	10.5	11.3	10.9
labor			19.7	27.7	33.9	40.7
variable moh		4.6	3	2.9	3.5
Variable Selling cost		2.5	1.5	3.6	1.9
Contribution margin per unit	35	51.1	36	47.5
Divide: Grinding min required per unit	4.1	5.6	4.6	3.7
Contribution per grinnding minute	8.54	9.13	7.83	12.84
Ranking			Third	Second	fourth	First
Maximum demand		4300	4300	3300	2300
Maximum Minutes required	17630	24080	15180	8510	65400
Total available minutes					65000
Shortage of Minutes				-400		400
Minutes utilized		17630	24080	14780	8510	65000
Thus, when the additional minutes is made available, it will only be utilized in productio of C product.
The maximum contirbution per minute of C = 7.83 per minute.
Therefore, the company is ready to pay maximum of $7.83 per minute of additional grinding minute
Answer is 7.83