Question 10.3 Guerrero Company makes three products in a single facility. These products have the following unit product costs: Products A B C Direct materials $10.90 $15.80 $8.00 Direct labour 12.50 12.60 9.90 Variable manufacturing overhead 2.40 1.20 1.40 Fixed manufacturing overhead 11.60 7.20 7.80 Unit product cost $37.40 $36.80 $27.10 Additional data concerning these products are listed below. Products A B C Mixing minutes per unit 2.00 1.00 0.50 Selling price per unit $55.80 $54.60 $43.10 Variable selling cost per unit $2.10 $1.40 $1.90 Monthly demand in units 2,000 1,000 3,000 The mixing machines are potentially a constraint in the production facility. A total of 5,900 minutes are available per month on these machines.Direct labour is a variable cost in this company. Required: How many minutes of mixing machine time would be required to satisfy demand for all four products? How much of each product should be produced, rounded to the nearest whole unit, to maximize operating income Up to how much should the company be willing to pay, rounded to the nearest whole cent, for one additional minute of mixing machine time if the company has made the best use of the existing mixing machine capacity?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 10.3

Guerrero Company makes three products in a single facility. These products have the following unit product costs:

	Products
	A	B	C
Direct materials	$10.90	$15.80	$8.00
Direct labour	12.50	12.60	9.90
Variable manufacturing overhead	2.40	1.20	1.40
Fixed manufacturing overhead	11.60	7.20	7.80
Unit product cost	$37.40	$36.80	$27.10

Additional data concerning these products are listed below.

	Products
	A	B	C
Mixing minutes per unit	2.00	1.00	0.50
Selling price per unit	$55.80	$54.60	$43.10
Variable selling cost per unit	$2.10	$1.40	$1.90
Monthly demand in units	2,000	1,000	3,000

The mixing machines are potentially a constraint in the production facility. A total of 5,900 minutes are available per month on these machines.

Direct labour is a variable cost in this company.

Required:

How many minutes of mixing machine time would be required to satisfy demand for all four products?
How much of each product should be produced, rounded to the nearest whole unit, to maximize operating income
Up to how much should the company be willing to pay, rounded to the nearest whole cent, for one additional minute of mixing machine time if the company has made the best use of the existing mixing machine capacity?

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