x Corporation makes four products in a single facility These

x Corporation makes four products in a single facility. These products have product costs: the following unit Products Dred mdenab$15.0 5310.50 3172.0 316.20 Direct materials Direct labor Variable Overhead 1 Variable Overhead 2 17.60 21.00 15.40 9.40 $2.60 $3.10 $2.80 $3.50 4.40 5.608.105.10 Additional data concerning these products are listed below. Products Grinding minutes per unit 2.00 1.10 0.70 0.30 Selling price per unit $78.70 $71.10 $67.90 $62.60 The grinding machines are potentially the constraint in the production. Which product makes the MOST profitable use of the grinding machines?

Solution

Grinding Machine Minutes becomes the key factor in this question since grinding machines are the constraint. Hence, the product providing maximum contribution per grinding machine minute will be most profitable.

A

B

C

D

Selling Price

78.70

71.10

67.90

62.60

Less: Variable Cost (Material +Labour+Overheads)

40.2

49.2

38.8

33.2

Contribution per Unit (A)

38.5

21.9

29.1

29.4

Grinding minutes (B)

2.00

1.1

0.70

0.30

Contribution per Grinding Minute A/B

19.25

19.91

41.57

98

Hence, Product D makes the most profitable use of grinding machines.

	A	B	C	D
Selling Price	78.70	71.10	67.90	62.60
Less: Variable Cost (Material +Labour+Overheads)	40.2	49.2	38.8	33.2
Contribution per Unit (A)	38.5	21.9	29.1	29.4
Grinding minutes (B)	2.00	1.1	0.70	0.30
Contribution per Grinding Minute A/B	19.25	19.91	41.57	98