Question

Ala Carte Bhd makes three products in a single facility. Data concerning these products follow Product Direct materials RM74.90 RM90.80 RM26.40 RM29.10 RM2.20 RM2.20 RM3.80 RM2.50 3.20 Direct Labor Variable manufacturing overhead Variable selling cost per unit Mixing minutes per unit Monthly demand in units RM71 RM15.20 RM1.60 2.90 2.70 1.000 4,000 4,000 The mixing machines are potentially the constraint in the production facility. A total of 24,500 minutes are available per month on these machines. Direct labor is a variable cost in the company Required: a) How many minutes of mixing machine time would be required to satisfy demand for all three products? (6 marks) How much of each product should be produced to maximize net operating income? (15 marks) b) c) machine time if the company has made the best use of the existing mixing machine capacity? Up to how much should the company be willing to pay for an additional hour of mixing (4 marks) Ala Carte Bhd makes three products in a single facility. Data concerning these products follow Product soling Pre ti Selh Direct Labor Variable manufacturing overhead Variable selling cost per unit Mixing minutes per unit Monthly demand in units RM74.90 RM90.80 RM71 RM26.40 RM29.10 RM15.20 RM2.20 RM2.20 RM3.80 RM2.50 3.20 RM1.60 RMB.00 2.70 1.000 2.90 4,000 4,000 The mixing machines are potentially the constraint in the production facility. A total of 24,500 minutes are available per month on these machines. Direct labor is a variable cost in the company. Required: a) How many minutes of mixing machine time would be required to satisty demand for all three products? (6 marks) (15 marks) How much of each product should be produced to maximize net operating income? b) the company be willing to pay for an additional hour of mixing (4 marks) c) machine time if the company has made the best use of the existing mixing machine capacity? Up to how much should

Answer 1

a. 4,000 units x 3.20 minutes + 4,000 units x 2.90 minutes + 1,000 units x 2.70 minutes = 27,100 minutes would be required to satisfy demand for all three products.

b.

	Product A	Product B	Product C
Selling Price per Unit	74.90	90.80	71.00
Less: Total Variable Cost per Unit	32.40	33.80	19.80
Contribution Margin per Unit	42.50	57.00	51.20
Mixing Minutes per Unit	3.20	2.90	2.70
Contribution Margin per Mixing Minute	13.28	19.66	18.96

Product B should be emphasized, then Product C, and lastly Product A.

Product	Number of Units
Product B	4,000 units	4,000 x 2.90 minutes = 11,600 minutes
Product C	1,000 units	1,000 x 2.70 minutes = 2,700 minutes
Product A	3,187 units	( 24,500 - 11,600 - 2,700) minutes / 3.20 minutes

c. Since the contribution per mixing minute of Product A is RM 13.28, the company should be willing to pay RM 13.28 x 60 = RM 796.80 for an addition hour of mixing machine time.