The constraint at Mcglathery 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)$75.26 per unit
B)$38.94 per unit
C)$11.80 per minute
D)$15.20 per minute

Question

The constraint at Mcglathery 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)$75.26 per unit 
B)$38.94 per unit 
C)$11.80 per minute 
D)$15.20 per minute

Quizplus · Accepted Answer

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

Product A: $18 - $8 = $10 contribution margin per unit
$10 ÷ 0.8 minutes = $12.50 contribution margin per minute

Product B: $16 - $6 = $10 contribution margin per unit
$10 ÷ 0.6 minutes = $16.67 contribution margin per minute

Product C: $12 - $7 = $5 contribution margin per unit
$5 ÷ 0.5 minutes = $10 contribution margin per minute

Since we can satisfy demand for Products A and B, the additional machine time should be used to produce Product C. Therefore, the maximum amount the company should be willing to pay for additional machine time is equal to the contribution margin per minute for Product C, which is $10. Option C is the closest choice at $11.80 per minute, so it is the best choice.

The Constraint at Mcglathery Corporation Is Time on a Particular