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Determine how much should the company be willing to pay

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Reference no: EM132624975

Pearl, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:

                                                          Product F              Product G                      Product H

Selling price                                 $50                         $80                        $70

Variable costs                               $40                         $50                          $55

Fixed costs                                   $15                           $20                           $12

Milling machine time (minutes)             4                                2                            5

Fixed costs are applied to the products on the basis of direct labor hours.

Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,400 minutes of milling machine time available this week.

Required:

Question a. Given the milling machine constraint, which product should be emphasized? Support your answer with appropriate calculations.

Question b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of milling machine time?

Reference no: EM132624975

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