Question

Marrin corporation makes three products that use the current constraint - a particular type of machine. Data Concerning these products appear below:

..........................................KZ...................XB....................ZP
Sell price/unit...........$511.28...........$286.70.......$142.60
Vcost/unit...............$392.59.............$286.70.....$108.79
Mins on constraint 8.3min..............6.1min.........2.3 min


Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the comp be willing to pay to aquire more of the constrained resource?

A$)14.3 per min
B)$14.8 per min
C)$33.81 per min
D)$118.69 per min

Answer 1

Marrin Corporation should be willing to pay up to $14.70 per minute to acquire more of the constrained machine time, as this is the highest contribution margin per minute provided by product ZP.

Step-by-step explanation:

To determine up to how much Marrin Corporation should be willing to pay to acquire more of the constrained machine time, we need to calculate the contribution margin per minute of machine time for each product. The contribution margin per unit is the selling price minus the variable cost. To find the contribution margin per minute, we divide the contribution margin per unit by the minutes on the machine constraint for each product.

First, we calculate the contribution margin per unit for each product:

• KZ: $511.28 - $392.59 = $118.69
• XB: $286.70 - $286.70 = $0.00 (break-even)
• ZP: $142.60 - $108.79 = $33.81

Next, we calculate the contribution margin per minute:

• KZ: $118.69 / 8.3 minutes = $14.30 per minute
• XB: $0.00 / 6.1 minutes = $0.00 per minute
• ZP: $33.81 / 2.3 minutes = $14.70 per minute

As the ZP product offers the highest contribution margin per minute, up to $14.70 per minute should be the maximum the company is willing to pay to acquire more of the constrained resource, which aligns with option B).