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Assume that a company makes three productsProduct A, Product B, and Product Cand provides the following information with respect to those products: Product A Product
Assume that a company makes three productsProduct A, Product B, and Product Cand provides the following information with respect to those products:
Product A | Product B | Product C | |
---|---|---|---|
Selling price | $ 80 | $ 75 | $ 85 |
Variable costs per unit: | |||
Direct materials | 16 | 24 | 20 |
Direct labor | 40 | 28 | 32 |
Variable overhead | 2 | 2 | 3 |
Total variable cost per unit | 58 | 54 | 55 |
Contribution margin per unit | $ 22 | $ 21 | $ 30 |
Machine-hours per unit | 2.5 | 3.0 | 4.0 |
The company incurs total fixed costs of $50,000. The maximum demand for each of its products is 600 units. The company has only 1,000 machine-hours available for production. Assuming the company has made optimal use of its 1,000 machine-hours, what is the maximum amount per hour the company should be willing to pay to rent additional machine-hours of capacity?
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