Question No. 4: Production under Constrained Resources Glover Company makes three products in a single facility. These products have the following unit product costs: Product A B C Direct materials $ 35.10 $ 51.60 $ 58.00 Direct labor 22.50 25.10 15.90 Variable manufacturing overhead 2.30 1.70 1.60 Fixed manufacturing overhead 12.20 7.80 8.40 Unit product cost $ 72.10 $ 86.20 $ 83.90 Additional data concerning these products are listed below. Product A B C Mixing minutes per unit 1.30 0.80 0.20 Selling price per unit $ 81.00 $ 103.40 $ 96.90 Variable selling cost per unit $ 2.90 $ 3.40 $ 3.20 Monthly demand in units 3100 4400 2400 The mixing machines are potentially the constraint in the production facility. A total of 7930 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 be required to satisfy demand for all three products? b. How much of each product should be produced to maximize net operating income? A B C Optimal production 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?
Question No. 4: Production under Constrained Resources
Glover Company makes three products in a single facility. These products have the following unit product costs:
Product
A
B
C
Direct materials
$
35.10
$
51.60
$
58.00
Direct labor
22.50
25.10
15.90
Variable manufacturing overhead
2.30
1.70
1.60
Fixed manufacturing overhead
12.20
7.80
8.40
Unit product cost
$
72.10
$
86.20
$
83.90
Additional data concerning these products are listed below.
Product
A
B
C
Mixing minutes per unit
1.30
0.80
0.20
Selling price per unit
$
81.00
$
103.40
$
96.90
Variable selling cost per unit
$
2.90
$
3.40
$
3.20
Monthly demand in units
3100
4400
2400
The mixing machines are potentially the constraint in the production facility. A total of 7930 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 be required to satisfy demand for all three products?
b. How much of each product should be produced to maximize net operating income?
A
B
C
Optimal production
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?
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