Question #2 (20 points ) Crane Company makes four products in a single facility.
ID: 2503522 • Letter: Q
Question
Question #2 (20 points)
Crane Company makes four products in a single facility. Data concerning these products appear below:
Product
A B C D
Selling price per unit $35.30 $30.20 $20.80 $26.00
Variable manuf. cost per unit $16.50 $15.80 $7.90 $8.50
Variable selling cost per unit $3.80 $1.60 $1.90 $3.30
Milling machine minutes per unit 3.30 1.70 2.10 2.50
Monthly demand in units 4,000 1,000 3,000 1,000
The milling machines are potentially the constraint in the production facility. A total of 22,600 minutes are available per month on these machines.
Required:
1. How many minutes of milling machine time would be required to satisfy demand for all four products?
2. Which product makes the LEAST profitable use of the milling machines?
3. Which product makes the MOST profitable use of the milling machines?
4. Up to how much would the company be willing to pay for one additional minute of milling machine time if the company has made the best use of the existing milling machine capacity? (Round off to the nearest whole cent.)
Explanation / Answer
1] How many minutes of milling machine time would be required to satisfy demand for all four products?
= 4000*3.3 + 1000*1.7 + 3000*2.1 + 1000*2.5
= 23700 MINUTES
2] Which product makes the LEAST profitable use of the milling machines?
= PRODUCT-A [REFER THE CHART]
3] Which product makes the MOST profitable use of the milling machines?
= PRODUCT- B [REFER THE CHART]
4] Up to how much would the company be willing to pay for one additional minute of milling machine time if the company has made the best use of the existing milling machine capacity?
= 4.54 PER ADDITIONAL MINUTE OF MILLING MACHINE TIME
REASON:- WE WILL UTILISE THE TIME IN PRODUCT-B,C,D FIRST
THEREFORE REMAINING MINUTES = 22600 - [1000*1.7 + 3000*2.1 + 1000*2.5]
= 10500 MINUTES THAT WILL BE UTILISED IN PRODUCT -A.