Question

Admirable Inc. makes three products in a single facility. Data concerning these products follow: Product A B C Selling price per unit $72.70 $77.10 $76.10 Direct materials $33.10 $40.60 $46.40 Direct labor $22.00 $13.10 $7.20 Variable manufacturing overhead $4.60 $4.40 $3.30 Variable selling cost per unit $1.60 $3.20 $2.00 Mixing minutes per unit 2.8 1.9 2.6 Monthly demand in units 3,000 1,300 2,200 The mixing machines are potentially the constraint in the production facility. A total of 14,800 minutes are available per month on these machines. Direct labor is a variable cost in this company. How much of each product should be produced to maximize net operating income

Answer 1

Product A $3.43

Product B $8.32

Product C $6.62

Step-by-step explanation:

Calculation to determine How much of each product should be produced to maximize net operating income

Product A Product B Product C

Selling price per unit $72.70 $77.10 $76.10

Direct materials $33.10 $40.60 $46.40

Direct labor $22.00 $13.10 $7.20

Variable manufacturing overhead $4.60 $4.40 $3.30

Variable selling cost per unit $1.60 $3.20 $2.00

Total variable cost per unit $61.3 $61.3 $58.9

Contribution margin per unit $9.6 $15.8 $17.2

Product A ($72.70-$61.3=$9.6)

Product B ($77.10-$61.3=$15.8)

Product C ($76.10-$58.9=$17.2)

Mixing minutes per unit 2.8 1.9 2.6

Contribution margin per unit $3.43 $8.32 $6.62

Rank in terms of profitability 3 1 2

Product A ($9.6/2.8=$3.43)

Product B ($15.8/1.9=$8.32)

Product C ($17.2/2.6=$6.62)

Therefore How much of each product should be produced to maximize net operating income will be:

Product A $3.43

Product B $8.32

Product C $6.62