Wright, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:
|
Products |
|||
|
C |
D |
E |
|
|
Selling price |
$90 |
$30 |
$60 |
|
Variable costs |
$35 |
$10 |
$20 |
|
Fixed costs |
$45 |
$15 |
$30 |
|
Tapping machine time (minutes) |
5 |
4 |
2 |
Fixed costs are applied to the products on the basis of direct labor hours.
Demand for the three products exceeds the company’s productive capacity. The tapping machine is the constraint, with only 2,400 minutes of tapping machine
time available this week.
Required:
a. Given the tapping machine constraint, which product should be emphasized?
Support your answer with appropriate calculations.
b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be
willing to pay for an additional hour of tapping machine time?
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