Hofbauer Corporation's two products have the following characteristics: The constrained resource is a particular machine that is available for 10,400 minutes each month. Each unit of product M73O requires 6 minutes on this machine and each unit of product M26B requires 8 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 16 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:
A) $226.60
B) $245.80
C) $169.00
D) $172.60

Question

Hofbauer Corporation's two products have the following characteristics:  The constrained resource is a particular machine that is available for 10,400 minutes each month. Each unit of product M73O requires 6 minutes on this machine and each unit of product M26B requires 8 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 16 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:
A) $226.60 
B) $245.80 
C) $169.00 
D) $172.60

Quizplus · Accepted Answer

The absolute minimum acceptable selling price is the variable cost per unit plus the opportunity cost of the constrained resource. The opportunity cost of the constrained resource is the contribution margin per unit of the product that is currently being produced on the constrained resource. In this case, the contribution margin per unit of the current product is $226.60 - $169.00 = $57.60. Therefore, the absolute minimum acceptable selling price for the new product is $169.00 + $57.60 = $226.60.

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