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Holton Company Variable Costs

Holton Company makes three products in a single facility. Data concerning these products follow:

Selling price per unit $76.10 $72.70 $77.10
Direct materials $33.10 $40.60 $46.40
Direct labor $24.00 $13.10 $7.20
Variable manufacturing overhead $ 4.60 $ 4. 40 $ 3. 30
Variable selling cost per unit $1.60 $ 3.20 $ 2.00
Mixing minutes per unit $2.80 $1.90 $ 2.60
Monthly demand in units 3000 1000 2,000

The mixing machines are potentially the constraint in the production facility. A total of 14,700 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

a). How many minutes of mixing machine time would be required to satisfy demand for all three products?
b). How much of each product should be produced to maximize net operating income? (Round to nearest whole unit)
c). Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round to the nearest whole cent).

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Solution Summary

The solution examines Holton's Company variable costs and direct labor. How much of each product to provide in order to maximize the net operating income is determined.