Question No. 4: Production under Constrained Resources (5 Marks; 25 Minutes)

Glover Company makes three products in a single facility. These products have the following unit product costs:

Product

A

B

C

Direct materials

$

35.10

$

51.60

$

58.00

Direct labor

22.50

25.10

15.90

Variable manufacturing overhead

2.30

1.70

1.60

Fixed manufacturing overhead

12.20

7.80

8.40

Unit product cost

$

72.10

$

86.20

$

83.90

Additional data concerning these products are listed below.

Product

A

B

C

Mixing minutes per unit

1.30

0.80

0.20

Selling price per unit

$

81.00

$

103.40

$

96.90

Variable selling cost per unit

$

2.90

$

3.40

$

3.20

Monthly demand in units

3100

4400

2400

The mixing machines are potentially the constraint in the production facility. A total of 7930 minutes are available per month on these machines. Direct labor is a variable cost in this company.

Required:

b. How much of each product should be produced to maximize net operating income?

A

Optimal production