The constraint at Pickrel Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of this constrained resource? (Round your intermediate calculations to 2 decimal places.)
A) $15.60 per minute
B) $13.10 per minute
C) $104.52 per unit
D) $27.36 per unit

Question

The constraint at Pickrel Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below:  Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of this constrained resource? (Round your intermediate calculations to 2 decimal places.)
A) $15.60 per minute 
B) $13.10 per minute 
C) $104.52 per unit 
D) $27.36 per unit

Quizplus · Accepted Answer

To find out which product is the least profitable, we need to calculate the contribution margin per minute or per unit of each product.

Product A:
Contribution margin per minute = ($30 - $14 - $8)/2 = $4
Contribution margin per unit = $30 - $14 - $8 = $8

Product B:
Contribution margin per minute = ($20 - $10)/1 = $10
Contribution margin per unit = $20 - $10 = $10

Product C:
Contribution margin per minute = ($18 - $9 - $5)/1.5 = $1.33
Contribution margin per unit = $18 - $9 - $5 = $4

Based on the calculation above, we can see that Product C is the least profitable product with the lowest contribution margin per minute and per unit. Therefore, the company should be willing to pay up to the amount that would make Product C profitable.

To calculate this amount, we need to find the difference between the contribution margin per minute of Product B and Product C, which is $10 - $1.33 = $8.67. This means that if the company could acquire more machine time, it would be willing to pay up to $8.67 per minute for that time.

Hence, the answer is B) $13.10 per minute (rounded to two decimal places).

The Constraint at Pickrel Corporation Is Time on a Particular