The constraint at Dreyfus Inc. is an expensive milling machine. The three products listed below use this constrained resource. VYQXAMSelling price per unit$78.65 $421.59 $145.92 Variable cost per unit$62.40 $331.20 $113.28 Time on the constraint (minutes) 1.30 6.90 2.40 Required:a. Rank the products in order of their current profitability from the most profitable to the least profitable. In other words, rank the products in the order in which they should be emphasized.b. Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource?
What will be an ideal response?
a.
| VY | QX | AM | |||||||
| Selling price per unit | $ | 78.65 | $ | 421.59 | $ | 145.92 | |||
| Variable cost per unit | 62.40 | 331.20 | 113.28 | ||||||
| Contribution margin per unit | $ | 16.25 | $ | 90.39 | $ | 32.64 | |||
| Time on the constraint (minutes) | 1.30 | 6.90 | 2.40 | ||||||
| Contribution margin per unit of the constrained resource | $ | 12.50 | $ | 13.10 | $ | 13.60 | |||
| Ranking | 3 | 2 | 1 | ||||||
b. The company should be willing to pay up to $12.50 per minute to obtain more of the constrained resource since this is the value to the company of using this constrained resource to make more of product VY. By assumption, enough of the other two products will already have been produced to fully satisfy demand.
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