Answer:
The company should be willing to pay less than $4.20 for one additional minute of milling machine time.
Explanation:
a) Data and Calculations:
Product Product Product Product
A B C D
Selling price per unit $42.30 $50.00 $37.60 $33.50
Variable manufacturing cost per unit $20.80 $30.70 $21.00 $19.90
Variable selling cost per unit $2.70 $2.10 $1.00 $2.40
Total variable costs per unit $23.50 $32.80 $22,00 $22.30
Contribution per unit $18.80 $17.20 $15.60 $11.20
Milling machine minutes per unit 3.30 4.10 2.60 1.30
Contribution per minute $5.70 $4.20 $6.00 $8.62
Monthly demand in units 1,000 4,000 3,000 3,000
Minutes required 3,300 16,400 7,800 3,900
Best use of existing minutes 2,300 0 7,800 3,900
Additional minutes required 1,000 16,400 0 0
Total minutes required = 31,400
Minutes available = 14,000
Minutes to buy = 17,400
Lost contribution from:
Product A = (1,000 * $5.70 = $5,700
Product B = (16,400 * $4.20 = 68,880
Total lost contribution $74,580
Required time to produce lost contribution = 17,400
Estimated to pay for additional minute = $4.29 ($74,580/17,400)
