Question
Pond Corporation makes three products. These products use the same mixing machines and are potentially the constraint in the production facility. The unit product costs
Pond Corporation makes three products. These products use the same mixing machines and are potentially the constraint in the production facility. The unit product costs of the three products are as follows:
| Product | |||||
| A | B | C | |||
Direct materials | $ | 33.50 | $ | 50.00 | $ | 56.40 |
Direct labor |
| 20.90 |
| 23.50 |
| 14.30 |
Variable manufacturing overhead |
| 1.90 |
| 1.30 |
| 0.20 |
Fixed manufacturing overhead |
| 12.80 |
| 8.40 |
| 9.00 |
Unit product cost | $ | 69.10 | $ | 83.20 | $ | 79.90 |
Additional data concerning these products are listed below.
| Product | |||||
| A | B | C | |||
Mixing minutes per unit |
| 1.90 |
| 0.50 |
| 0.20 |
Selling price per unit | $ | 65.00 | $ | 87.40 | $ | 80.90 |
Variable selling cost per unit | $ | 1.30 | $ | 1.80 | $ | 1.60 |
Monthly demand in units |
| 2,700 |
| 4,000 |
| 2,000 |
Direct labor is a variable cost in this company. A total of 7,430 minutes are available per month on these machines.
Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all three products?
b. How many units of each product should be produced to maximize net operating income?
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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