Question
The mixing machines are potentially the constraint in the production facility. A total of 25,500 minutes are available per month on the mixing machines. Direct
The mixing machines are potentially the constraint in the production facility. A total of 25,500 minutes are available per month on the mixing machines. Direct labor is a variable cost in this company. F. Assume there is unmet demand. how much total should Acme be willing to pay for extra mixing machine time? G. Does contribution margin have role in answering any of the questions above? If so, which ones? H. Is the difference between what a product is sold for and the product cost the best predictor of which product Acme should produce the most of? Is the difference between what a product is sold for and the product cost the best predictor of which product Acme should produce the most of?
| Acme Corp | ||||||
| PRODUCTS | ||||||
| Alpha | Beta | Chi | ||||
| Direct Material | $ 29.50 | $ 26.00 | $ 28.00 | |||
| Direct Labor | $ 15.50 | $ 13.50 | $ 13.00 | |||
| Variable Manufacturing Overhead | $ 4.00 | $ 5.00 | $ 8.00 | |||
| Fixed Manufacturing Overhead | $ 26.00 | $ 27.00 | $ 23.00 | |||
| Unit Cost | $ 75.00 | $ 71.50 | $ 72.00 | |||
| Variable selling cost per unite | $ 7.00 | $ 5.00 | $ 6.00 | |||
| Monthly demand in units | 1,800 | 3,600 | 3,100 | |||
| Mixing minutes required to produce one unit | 5 | 3 | 4 | |||
| Alpha | Beta | Chi | ||||
| Selling Price Per Unit | $ 100.00 | $ 91.50 | $ 96.00 | |||
| Total Variable Cost Per Unit | $ 56.00 | $ 49.50 | $ 55.00 | |||
| Contribution Margin Per Unit | $ 44.00 | $ 42.00 | $ 41.00 | |||
| Contribution Margin Ratio | 44% | 46% | 43% | |||
| Mixing minutes required to produce one unit | 5 | 3 | 4 | |||
| Contirbution Margin per unit of the restrained resource (per minute) | $ 8.80 | $ 14.00 | $ 10.25 | |||
| Total minutes required | ||||||
| Monthly Demand in Units | 1,800 | 3,600 | 3,100 | |||
| Mixing Time required to produce one unit | 5 | 3 | 4 | |||
| Total mixing time required | 9,000 | 10,800 | 12,400 | 32,200 | ||
| Rank | 3 | 1 | 2 | |||
| Contribution Margin per unit of the constrained resource (in minutes) | 8.80 | 14.00 | 10.25 | |||
| 60 | 60 | 60 | ||||
| Contribution Margin per unit of the contstrained resource (in hours) | 528 | 840 | 615 | |||
| Number of minutes allotted | 8,300 | 4,800 | 12,400 | |||
| Number of minutes per unit | 5 | 3 | 4 | |||
| Optimal Production | 1,660 | 1,600 | 3,100 | |||
| Available minutes per month | 25,500 | minutes | ||||
| Monthy Demand for Product Alpha | 1,800 | units | ||||
| Mixing time required for one Product Alpha | 5 | minutes | ||||
| Total mixing time required to produce Product Alpha | 9,000 | minutes | ||||
| Remaining mixing time available | 16,500 | minutes | ||||
| Monthly demand for Product Beta | 3,600 | units | ||||
| mixing time required for one Product Beta | 3 | minutes | ||||
| total mixing tiime required to product Product Beta | 10,800 | minutes | ||||
| remaining mixing time available | 5,700 | minutes | ||||
| Mixing time required for one Product Chi | 4 | minutes | ||||
| production of Product Chi | 1,425 | units | ||||
| A. There will be a required 32,200 minutes of mixing machine time to satisfy demand for all three products | ||||||
| B. To maximize the net operating income, there should be a consideration in the amount of the constrained resource each product requires, in this case mixing. This will produce 1,800 units of product Alpha, 3,600 units of product Beta, and 3,100 units of product Chi. Since producing product Alpha is the most profitable use of the mixer, the gives that unit priority to make it's monthly demand. The second priority is Product Beta, and lastly, Product Chi. Product Chi is the least profitbale use of the mixer; therefore it is given last priority. Since there are only 25,500 minutes available per month, and 32,200 minutes are needed. In conclusion, Product Chi should be eliminated because it is the least profitable. | ||||||
| C. Yes, there is an unmet demand of: | 1,675 | units | ||||
| D. Yes, the variable selling expense contributes to all answers. It is required the Contribution Margin and the same is calculated by | ||||||
| subtracting Variable expenses from Selling price per unit. | ||||||
| E. Acme Corp. should be willing to pay up to the contribution margin per minute for the marginal job which is 8.80. If the company has already made the best use of of the existing mixing machine capacity, the target for both Product Alpha and Product Beta have already been met; therefore, remaining time should be dedicated to making Product Chi. | ||||||
| F. If unmet demand, how much total should Acme be willing to pay for extra mixing time? | ||||||
| G. Does the contribution margin have a role in answering any questions above? Which ones? | ||||||
| H. Is the difference between what product is sold for and the product cost the best predictor of which product Acme should produce the most of? | ||||||
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Cost Accounting Planning And Control
Authors: Adolph Matz, Milton F. Usry
10th Edition
0538809256, 978-0538809252
