Broze Company makes four products in a single facility.These products have the following unit product costs: Additional data concerning these products are listed below. The grinding machines are the constraint in the production facility.A total of 53,600 minutes are available per month on these machines.Direct labor is a variable cost in this company.Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round off to the nearest whole cent. )
A)$35.90.
B)$0.00.
C)$8.58.
D)$11.60.

Question

Broze Company makes four products in a single facility.These products have the following unit product costs:  Additional data concerning these products are listed below.  The grinding machines are the constraint in the production facility.A total of 53,600 minutes are available per month on these machines.Direct labor is a variable cost in this company.Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacity? (Round off to the nearest whole cent. )
A)$35.90. 
B)$0.00. 
C)$8.58. 
D)$11.60.

Quizplus · Accepted Answer

To determine the cost of one additional minute of grinding machine time, we need to calculate the contribution margin per minute of each product.

Product A: $104 - ($63 + $14 + $6) = $21 
Product B: $140 - ($84 + $18 + $8) = $30 
Product C: $95 - ($58 + $12 + $5) = $20 
Product D: $110 - ($68 + $15 + $7) = $20

We can see that Product B has the highest contribution margin per minute of grinding machine time at $30. Therefore, the company should be willing to pay up to $30 for one additional minute of grinding machine time.

However, since there are only 53,600 minutes available per month on these machines, the company should only invest in additional grinding machine time if the potential revenue generated from the extra production exceeds the cost of the additional machine time.

Broze Company Makes Four Products in a Single Facility