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 $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

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?

Answer 1

Product D

Step-by-step explanation:

The contribution margin will be used for this assessment

Contribution margin is the selling price of an item less the associated variable selling cost to determine the extra profit for each unit of an item sold.

However , the grinding hour being the constraint in this scenario , the contribution per minute of production will be used.

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 Man. 5.40 6.60 9.10 6.10

Variable selling C. 3.60 4.10 3.80 4.50

Selling price 83.70 76.10 72.90 67.60

Contribution/unit 39.50 22.90 30.10 30.40

Minute /unit 2.50 1.60 1.20 0.8

Contribution /min 15.8 14.13 25.08 38

Product D with the highest contribution per minute of production makes the most profitable use of the machine.