Brown Corporation makes four products in a single facility. These products have the following unit product costs:
Products A B C D
Direct materials $16.60 $20.50 $13.50 $16.20
Direct labor 18.60 22.00 16.40 10.40
Variable manufacturing overhead 5.40 6.60 9.10 6.10
Fixed manufacturing overhead 28.50 15.40 15.50 17.50
Unit product cost $69.10 $64.50 $54.50 $50.20
Additional data concerning these products are listed below.
Products A B C D
Grinding minutes per unit 2.50 1.60 1.20 0.80
Selling price per unit $83.70 $76.10 $72.90 $67.60
Variable selling cost per unit $3.60 $4.10 $3.80 $4.50
Monthly demand in units 4,000 3,000 3,000 5,000.00
The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines. Direct labor is a variable cost in this company. Which product makes the MOST profitable use of the grinding machines?
1. Product B
2. Product A
3. Product C
4. Product D
1
Answer : the MOST profitable use of the grinding machines = Product D
Working notes for the above answer is as follow
| Optimal production plan: | ||||
| Particular | Product A |
Product B |
Product c |
Product D |
| Selling price | 83.7 | 76.1 | 72.9 | 67.6 |
| Direct Material | 16.6 | 20.5 | 13.5 | 16.2 |
| Direct Labour PU | 18.6 | 22 | 16.4 | 10.4 |
| Variable manu o.H. Per Unit | 5.4 | 6.6 | 9.1 | 6.1 |
| Veriable selling cost PU | 3.6 | 4.1 | 3.8 | 4.5 |
| Contribution Margin Per Unit (A) | 39.5 | 22.9 | 30.1 | 30.4 |
| Grinding minutes per unit (B) | 2.5 | 1.6 | 1.2 | 0.8 |
| Contribution Margin Per Unit (A/B) | 15.8 | 14.3125 | 25.08333 | 38 |
| Rank | 3 | 4 | 2 | 1 |
