Question

Holton Company makes three products in a single facility. Data concerning these products follow:

Answer 1

Answer:

86,700 minutes

Explanation:

a.  Demand on the mixing machine:

Minutes required to produce 3000 units of A (3000 x 26.9) 80700  

Minutes required to produce 1000 units of B (1000 x 2) 2000  

Minutes required to produce 2000 units of C (2000 x 2) 4000  

Total minutes   =    86,700 minutes

Therefore, in order to satisfy the demand for all of the products they would need 86,700 minutes of mixing machine time,

but they only have 14,000 minutes available for each month.

This means that they cannot satisfy the demand with the number of minutes that they have available.

b.Optimal production plan:

                         Product A Product B Product C  

Selling price per unit           $ 137.10     $ 74.80 $ 167.60  

Direct materials     $ 59.70       $ 41.70  $ 100.70  

Direct labor      $ 43.00       $ 13.30  $ 29.50

Variable manufacturing overhead $ 8.20       $ 4.30 $ 13.80

Variable selling cost per unit  $ 15.20       $ 3.10  $ 8.50

Total variable cost per unit        $ 126.10    $ 62.40 $ 152.50

Contribution margin per unit  $ 11.00  $ 12.40  $ 15.10

Mixing minutes per unit          26.90 2.00  2.00

Contribution margin per minute  $0.41 $6.20  $7.55

Rank in terms of profitability          3  2          1

Optimal production          223  1,000  2,000

 

c. The company should be willing to pay $0.41 for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity for Product A.  

For Product B the company should be willing to pay $6.20, and $7.55 for Product C.