The constraint at Rauchwerger 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 the constrained resource?
A)$33.28 per unit
B)$10.40 per minute
C)$122.12 per unit
D)$15.30 per minute

Question

The constraint at Rauchwerger 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 the constrained resource?
A)$33.28 per unit 
B)$10.40 per minute 
C)$122.12 per unit 
D)$15.30 per minute

Quizplus · Accepted Answer

To determine the answer, we need to calculate the contribution margin per minute of each product since time on the constrained machine is the limiting factor.

Product A: Contribution margin per unit is $32.64 and it takes 3 minutes to produce a unit. Therefore, the contribution margin per minute is $10.88 ($32.64/3).

Product B: Contribution margin per unit is $22.00 and it takes 2 minutes to produce a unit. Therefore, the contribution margin per minute is $11.00 ($22.00/2).

Product C: Contribution margin per unit is $12.60 and it takes 1 minute to produce a unit. Therefore, the contribution margin per minute is $12.60 ($12.60/1).

Since the company can satisfy demand for all but the least profitable product, it should focus on producing the product with the highest contribution margin per minute. Therefore, the company should be willing to pay up to $11.00 per minute to acquire more of the constrained resource, which is the contribution margin per minute of Product B.

None of the other answer choices can be derived from the information given. 11ea7998_5c61_baf3_911b_41489a0e7084_TB2627_00_TB2627_00 The company should be willing to pay up to $10.40 per minute to produce more WX.

The Constraint at Rauchwerger Corporation Is Time on a Particular