Problem P7-8 Additional Processing Decision with a Production Constraint

Mega Chemical Company produces ZylexA and a related product called ZylexB. ZylexB, which sells for $17.00 per gallon, is made from a base of ZylexA plus additional ingredients. It takes 25 minutes to manufacture a gallon of ZylexA and an additional 10 minutes to manufacture a gallon of ZylexB. ZylexA sells for $11.00 per gallon. The cost per gallon of manufacturing ZylexA and the additional costs to convert it to ZylexB are:

				ZylexA	Additional Cost of ZylexB
		Material		$2.00	$1.75
		Labor		2.50	0.50
		Variable overhead		2.25	1.10

Both products have been successful and demand for both products is strong and beyond the company's capacity. Since it takes additional time to manufacture ZylexB, the vice president of production is trying to determine whether ZylexB should be produced.
Required:
Which product makes the largest contribution to company profit, given a capacity constraint measured in terms of production time?
						ZylexA
		Selling price				Amount
		Less:
		Title			Amount
		Title			Amount
		Title			Amount	Formula
		Contribution margin				Formula
		Title				Number
		Title				Formula
						ZylexB
		Incremental revenue				Amount
		Less:
		Title			Amount
		Title			Amount
		Title			Amount	Formula
		Incremental profit (loss)				Formula
		Title				Number
		Incremental loss per minute				Formula
Narrative answer: