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Production under resource constraint

5. Gloddy Company makes three products in a single facility. These products have the following unit product costs:

Direct material $24.90 $25.70 $26.60
Direct labor (variable) $13.30 $17.10 $15.70
Variable manufacturing overhead $2.50 $2.80 $3.10
Fixed manufacturing overhead $19.80 $27.70 $21.00
Unit product cost $60.50 $73.30 $66.40
Additional data concerning these products are listed below:
Mixing minutes per unit 2.50 1.70 1.60
Selling price per unit $71.50 $87.90 $83.00
Variable selling cost per unit $2.30 $1.90 $3.80
Monthly maximum demand in units 1,000 3,000 3,000

The mixing machines are potentially the constraint in the production facility. A total of 10,800
minutes are available per month on these machines. Direct labor is a variable cost in this company.

Required - use linear programing with excel solver to find the solutions as to how many units of each project
can be produced given the constraints in demand for each product and the limited monthly machine minutes.
Save the three reports available in the solver.

a. How many minutes of mixing machine time would be required to satisfy demand for all three products?

b. How much of each product (rounded) should be produced to maximize net operating income?

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?


Solution Summary

The solution explains the use of excel solver to determine production under situation of resource constraint.