Answer:
The correct answer is option (D).
Explanation:
According to the scenario, computation of the given data are as follows:
Variable cost = Direct material + Direct labor + Variable manufacturing overhead + Variable selling cost per unit
Variable cost of product A = $17.30 + $19.30 + $6.10 + $3.05 = $45.75
Variable cost of product B = $21.20 + $22.70 + $7.30 + $3.75 = $54.95
Variable cost of product C = $14.20 + $17.10 + $9.80 + $4.50 = $45.60
Variable cost of product D = $16.90 + $11.10 + $6.80 + $5.20 = $40
Contribution per unit (CPU) = selling price per unit – variable cost
Product A CPU = $87.20 - $45.75 = $41.45
Product B CPU = $79.60 - $54.95 = $24.65
Product C CPU = $76.40 - $45.60 = $30.8
Product D CPU = $71.10 - $40 = $31.10
Contribution per grinding minutes (CPGM) = CPU ÷ contribution per grinding minutes
CPGM of Product A = $41.45 ÷ 2.30 = $18.02
CPGM of Product B = $24.65 ÷ 1.35 = $18.26
CPGM of Product C = $30.8 ÷ 0.90 = $34.22
CPGM of Product D = $31.10 ÷ 1.20 = $25.92
According to the analysis, Product C makes the most profitable use of grinding machine. Because it’s give the highest contribution per grinding minutes.
