Scribd
Upload
69 views2 pages

Mixing Machine Time and Profitability Analysis

The document discusses a company that makes three products in a single facility with limited monthly mixing machine time of 12,500 minutes. It asks to calculate the total mixing machine time required to meet monthly demand for all products (12,700 minutes), the contribution margin per unit and per minute of each product, and the optimal production quantities to maximize profit given the constraints. The optimal production plan is to produce 4,000 units of Product A, 882 units of Product B, and 2,000 units of Product C, prioritizing products in order of their contribution margin per minute.

Uploaded by

Ehrom Saidov
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
69 views2 pages

Mixing Machine Time and Profitability Analysis

The document discusses a company that makes three products in a single facility with limited monthly mixing machine time of 12,500 minutes. It asks to calculate the total mixing machine time required to meet monthly demand for all products (12,700 minutes), the contribution margin per unit and per minute of each product, and the optimal production quantities to maximize profit given the constraints. The optimal production plan is to produce 4,000 units of Product A, 882 units of Product B, and 2,000 units of Product C, prioritizing products in order of their contribution margin per minute.

Uploaded by

Ehrom Saidov
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

CASE Limiting factors

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

Product
A B C
Selling price per unit.................................. $75.90 $71.10 $73.40
Direct materials.......................................... $29.70 $30.20 $33.40
Direct labor................................................ $21.20 $19.80 $19.60
Variable manufacturing overhead.............. $4.90 $5.60 $7.60
Variable selling cost per unit..................... $1.30 $3.90 $1.80
Mixing minutes per unit............................. 2.10 1.70 1.30
Monthly demand in units........................... 4,000 1,000 2,000

The mixing machines are potentially the constraint in the production facility. A total of
12,500 minutes are available per month on these machines.
Direct labor is a variable cost in this company.

Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all
four products?
b. What is a contribution margin per unit produced for each product?
c. What is a contribution margin per constraint for each product?
d. How many units of each product should be produced to maximize net operating income?
(Round off to the nearest whole unit.)
Answer:

a. Demand on the mixing machine:


Product
A B C
Mixing minutes per unit.............. 2.10 1.70 1.30
1,00
Monthly demand in units............. 4,000 0 2,000
1,70
Total minutes required................. 8,400 0 2,600

Total time required for all products: 12,700

b. Optimal production plan:


Product
A B C
Selling price per unit.................................. $75.90 $71.10 $73.40
Direct materials.......................................... 29.70 30.20 33.40
Direct labor................................................ 21.20 19.80 19.60
Variable manufacturing overhead.............. 4.90 5.60 7.60
Variable selling cost per unit.....................     1.30     3.90     1.80
Total variable cost per unit........................   57.10   59.50   62.40
Contribution margin per unit..................... $18.80 $11.60 $11.00
Mixing minutes per unit............................. 2.10 1.70 1.30
Contribution margin per minute................. $8.95 $6.82 $8.46
Rank in terms of profitability..................... 1 3 2
Optimal production.................................... 4,000 882 2,000

You might also like