Question

The constraint at Pickrel Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below:

VD JT SM
Selling price per unit $ 344.85 $ 415.40 $ 119.32
Variable cost per unit $ 270.18 $ 310.88 $ 91.96
Minutes on the constraint 5.70 6.70 1.90

Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of this constrained resource? (Round your intermediate calculations to 2 decimal places.)
Multiple Choice
A) $27.36 per unit
B) $13.10 per minute
C) $104.52 per unit
D) $15.60 per minute

Answer 1

For each product made by Pickrel Corporation, we calculate the contribution margin per minute. The product JT provides the highest margin at $15.60 per minute, indicating the maximum price the company should be willing to pay for additional constrained machine time.

Step-by-step explanation:

In the scenario provided, the Pickrel Corporation needs to determine how much to pay for additional time on a constrained machine. To find this value, we calculate the contribution margin per minute for each product, which is the selling price per unit minus the variable cost per unit, divided by the minutes on the constraint.

The product with the highest contribution margin per minute dictates the maximum amount the company would be willing to pay for additional machine time.

Here's the calculation for each product:

• VD: ($344.85 - $270.18) / 5.70 = $13.10 per minute
• JT: ($415.40 - $310.88) / 6.70 = $15.60 per minute
• SMS: ($119.32 - $91.96) / 1.90 = $14.40 per minute

Since JT has the highest contribution margin per minute, the maximum Pickrel Corporation should be willing to pay is $15.60 per minute for more time on this machine.

Therefore, the correct answer is D) $15.60 per minute.