Question

Bruce Corporation makes four products in a single facility. These products have the following unit product costs:

Products A B C D
Direct materials $ 17.30 $ 21.20 $ 14.20 $ 16.90
Direct labor 19.30 22.70 17.10 11.10
Variable manufacturing overhead 6.10 7.30 9.80 6.80
Fixed manufacturing overhead 29.20 16.10 16.20 18.20
Unit product cost 71.90 67.30 57.30 53.00

Additional data concerning these products are listed below.

Products A B C D
Grinding minutes per unit 2.30 1.35 0.90 1.20
Selling price per unit $ 87.20 $ 79.60 $ 76.40 $ 71.10
Variable selling cost per unit $ 3.05 $ 3.75 $ 4.50 $ 5.20
Monthly demand in units 4,700 3,700 3,700 5,700

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?

A. Product B
B. Product A
C. Product D
D. Product C

Answer 1

Answer:

The correct answer is option (D).

Explanation:

According to the scenario, computation of the given data are as follows:

Variable cost = Direct material + Direct labor + Variable manufacturing overhead + Variable selling cost per unit

Variable cost of product A =    $17.30 + $19.30 + $6.10 + $3.05 = $45.75

Variable cost of product B =   $21.20 + $22.70 + $7.30 + $3.75 = $54.95

Variable cost of product C =   $14.20 + $17.10 + $9.80 + $4.50 = $45.60

Variable cost of product D =   $16.90 + $11.10 + $6.80 + $5.20 = $40

Contribution per unit (CPU) = selling price per unit – variable cost  

Product A CPU = $87.20 - $45.75 = $41.45

Product B CPU = $79.60 - $54.95 = $24.65

Product C CPU = $76.40 - $45.60 = $30.8

Product D CPU = $71.10 - $40 = $31.10

Contribution per grinding minutes (CPGM)  = CPU ÷ contribution per grinding minutes

CPGM of Product A = $41.45 ÷ 2.30 = $18.02

CPGM of Product B = $24.65 ÷ 1.35 = $18.26

CPGM of Product C = $30.8 ÷ 0.90 = $34.22

CPGM of Product D = $31.10 ÷ 1.20 = $25.92

According to the analysis, Product C makes the most profitable use of grinding machine. Because it’s give the highest contribution per grinding minutes.

Answer 2

The product that makes the MOST profitable use of the grinding machines based on the resource constraint of 10,500 minutes is D. Product C.

Data and Calculations:

Products                                                  A             B              C             D

Direct materials                                 $ 17.30   $ 21.20      $ 14.20    $ 16.90

Direct labor                                          19.30     22.70           17.10          11.10

Variable manufacturing overhead       6.10        7.30           9.80         6.80

Variable selling cost per unit           $ 3.05     $ 3.75       $ 4.50      $ 5.20

Total variable costs                         $45.75    $54.95     $45.60     $40.00

Selling price per unit                     $ 87.20    $ 79.60    $ 76.40      $ 71.10

Contribution margin per unit          $41.45     $24.65    $30.80       $31.10

Grinding minutes per unit                  2.30          1.35         0.90          1.20

Contribution margin per minute $18.02     $18.26    $34.22    $25.92

The contribution margin per minute of grinding machine = Contribution margin per unit/Grinding minutes per unit

Thus, the decision of the product making the MOST profitable use of the grinding minutes is based on the contribution margin per minute, which is D. Product C.

Learn more about making the most profitable use of a resource constraint based on contribution per resource constraint here: https://brainly.com/question/6528766