Question

The constraint at Rauchwerger Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: WX KD FS Selling price per unit $ 335.18 $ 228.46 $ 199.21 Variable cost per unit $ 259.26 $ 173.08 $ 159.61 Minutes on the constraint 7.50 4.30 5.50 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 the constrained resource

Answer 1

7.20

Step-by-step explanation:

The computation of willing to pay amount is shown below:

= (Selling price per unit - variable cost per unit) ÷ (Minutes on the constraint)

For Product WX

= ($335.18 - $259.26) ÷ (7.50)

= 10.12

For Product KD

= ($228.46 - $173.08) ÷ (4.30)

= 12.88

For Product FS

= ($199.21 - $159.61) ÷ (5.50)

= 7.20

So based on rank, the product FS should be used as it has third rank i.e 7.20