Question

17. Holton Company makes three products in a single facility. Data concerning these products follow:

	Product
	A			B			C
Selling price per unit	$	76.10	$		72.70	$		77.10
Direct materials	$	33.10	$		40.60	$		46.40
Direct labor	$	24.00	$		13.10	$		7.20
Variable manufacturing overhead	$	4.60	$		4.40	$		3.30
Variable selling cost per unit	$	1.60	$		3.20	$		2.00
Mixing minutes per unit		2.80			1.90			2.60
Monthly demand in units		3,000			1,000			2,000

The mixing machines are potentially the constraint in the production facility. A total of 14,700 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

Product
	A		B	C
Selling price per unit	$	76.1	72.7	77.1
Direct materials	$	33.1	40.6	46.4
Direct labor	$	24	13.1	7.2
Variable manufacturing overhead	$	4.6	4.4	3.3
Variable selling cost per unit	$	1.6	3.2	2
Contribution Margin per Unit		12.8	11.4	18.2
Mixing minutes per unit		2.8	1.9	2.6
Contribution Margin per Minute		4.57	6.00	7.00
Products should be produced in the order of contribution margin per minute
Product	Units	Minutes per Unit	Total Units
A	2714.285714	2.8	7600
B	1000	1.9	1900
C	2000	2.6	5200
		Total	14700
Additional hour will be used to produce Product A
Hence, amount paid = Contribution margin per hour
97.9592