Crane Corporation makes four products in a single facility. Data concerning these products appear below:

The milling machines are potentially the constraint in the production facility. A total of 22,600 minutes are available per month on these machines.
-Up to how much should the company be willing to pay for one additional minute of milling machine time if the company has made the best use of the existing milling machine capacity? (Round your answer to the nearest whole cent.)
A)$11.00
B)$0.00
C)$4.55
D)$15.00

Question

Crane Corporation makes four products in a single facility. Data concerning these products appear below:

The milling machines are potentially the constraint in the production facility. A total of 22,600 minutes are available per month on these machines.
-Up to how much should the company be willing to pay for one additional minute of milling machine time if the company has made the best use of the existing milling machine capacity? (Round your answer to the nearest whole cent.)
A)$11.00 
B)$0.00 
C)$4.55 
D)$15.00

Quizplus · Accepted Answer

To determine the maximum amount the company should be willing to pay for one additional minute of milling machine time, we need to calculate the contribution margin per minute of milling machine time. 
Contribution margin per unit = Selling Price per unit - Variable costs per unit 
Contribution margin per unit for Product A = $36 - $22 = $14 
Contribution margin per minute of milling machine time for Product A = $14 ÷ 3 minutes = $4.67 
Therefore, the company should be willing to pay up to $4.67 for one additional minute of milling machine time. Rounded to the nearest whole cent, this is $4.55. Therefore, the best choice is C.

Crane Corporation Makes Four Products in a Single Facility