Locken Products Inc.makes two products-Q96T and T62D.Product Q96T's selling price is $48.00 and its unit variable cost is $33.60.Product T62D's selling price is $190.00 and its unit variable cost is $152.00.The monthly demand is 3, 340 units for product Q96T and 730 units for T62D.The constrained resource is a particular machine that is available for 10, 400 minutes each month.Each unit of product Q96T requires 2 minutes on this machine and each unit of product T62D requires 10 minutes on this machine. Up to how much should the company be willing to pay to obtain enough of the constrained resource to satisfy demand for the two existing products?

Question

Quizplus · Accepted Answer

The contribution margin per minute for Q96T is $7.20 and for T62D is $3.80. The company should be willing to pay up to the contribution margin per minute of the product with the highest contribution margin per minute, which is $3.80 for T62D.