Question

TB Problem Qu. 12-193 Garson, Inc. produces three products ... Garson, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below: Selling price Variable costs Fixed costs Milling machine time (minutes) Product F G H $75 $ 55 $ 85 $ 45 $ 35 $ 50 $ 35 $ 8 $ 32 10 4 5 Fixed costs are applied to the products on the basis of direct labor hours. Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,600 minutes of milling machine time available this week. Required: a. Given the milling machine constraint, which product should be emphasized? b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of milling machine time? Product a. Product that should be emphasized b. Maximum amount per hour

Answer 1

a.	Poduct should be emphasized	Product H
b.	Maximum amount	$        420	per hour
	Workings:
a.		Product
		F	G	H
	Selling price	$          75	$          55	$          85
Less:	Variable cost	$          45	$          35	$          50
(i)	Contribution margin	$          30	$          20	$          35
(ii)	Miling machine time (minutes)	10	4	5
(i) / (ii)	Contribution margin per minute	$             3	$             5	$             7
b.	Maximum amount per hour	=	$7 X 60 minutes
		=	$        420