Shorr Corporation's two products have the following characteristics: The constrained resource is a particular machine that is available for 9,900 minutes each month. Each unit of product U29D requires 16 minutes on this machine and each unit of product X43P requires 2 minutes on this machine.
-The company is considering launching a new product that would have a variable cost of $169.00 per unit and no avoidable fixed costs.It would require 15 minutes of the constrained resource.The absolute minimum acceptable selling price for the new product should be:
A)$169.00
B)$211.00
C)$171.80
D)$277.00

Question

Shorr Corporation's two products have the following characteristics:  The constrained resource is a particular machine that is available for 9,900 minutes each month. Each unit of product U29D requires 16 minutes on this machine and each unit of product X43P requires 2 minutes on this machine.
-The company is considering launching a new product that would have a variable cost of $169.00 per unit and no avoidable fixed costs.It would require 15 minutes of the constrained resource.The absolute minimum acceptable selling price for the new product should be:
A)$169.00 
B)$211.00 
C)$171.80 
D)$277.00

Quizplus · Accepted Answer

To determine the minimum acceptable selling price, we need to consider the contribution margin per unit, which is the selling price minus the variable cost per unit. Since there are no avoidable fixed costs, we only need to cover the variable cost per unit to break even.

The resource constraint is also important to consider. If the product requires 15 minutes of the constrained resource, we need to make sure that the contribution margin per unit is high enough to justify using that resource.

Assuming that the constrained resource is fully utilized and has a cost of $60 per hour, or $1 per minute, the cost of using the constrained resource for 15 minutes would be $15.00 per unit.

Therefore, the minimum acceptable selling price would be:

Selling price = Variable cost per unit + Cost of constrained resource per unit
Selling price = $169.00 + $15.00
Selling price = $184.00

However, this is just the minimum acceptable selling price. To make a profit, the selling price would need to be higher than $184.00. The answer choice of $211.00 is the only option that meets this requirement.

Shorr Corporation's Two Products Have the Following Characteristics: the Constrained