Reference: 09-13
Brown Company Makes Four Products in a Single

question 61

Multiple Choice

Reference: 09-13
Brown Company makes four products in a single facility. These products have the following unit product costs: $\begin{array}{|l|c|c|c|c|}\hline&\text { Product }\\\hline &A&B&C&D\\\hline \text { Direct materials } & \$ 15.60 & \$ 19.50 & \$ 12.50 & \$ 15.20 \\\hline \text { Direct labour } & 17.60 & 21.00 & 15.40 & 9.40 \\\hline \begin{array}{l}\text { Variable manufacturing } \\\text { overhead }\end{array} & 4.40 & 5.60 & 8.10 & 5.10 \\\hline \begin{array}{l}\text { Fixed manufacturing } \\\text { overhead }\end{array} & 27.50 & 14.40 & 14.50 & 16.50 \\\hline \text { Unit product cost } & \underline{\underline{\$ 65.10}} & \$ 60.50 & \$ 50.50 & \$ 46.20 \\\hline\end{array}$
$\text { Additional data concerning these products are listed below. }$
$\begin{array}{|l|l|l|l|l|}\hline&\text { Product }\\\hline &A&B&C&D\\\hline \text { Grinding minutes per unit } & 2.00 & 1.10 & 0.70 & 0.30 \\\hline \text { Selling price per unit } & \$ 78.70 & \$ 71.10 & \$ 67.90 & \$ 62.60 \\\hline \begin{array}{l}\text { Variable selling cost per } \\\text { unit }\end{array} & \$ 2.60 & \$ 3.10 & \$ 2.80 & \$ 3.50 \\\hline \text { Monthly demand in units } & 3,000 & 2,000 & 2,000 & 4,000 \\\hline\end{array}$ The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines. Direct labour is a variable cost in this company.
-Up to how much should the company be willing to pay for one additional hour of grinding machine time if the company has made the best use of the existing grinding machine capacity

• A)$0.00.
• B)$21.90.
• C)$10.60.
• D)$19.25.

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Definitions:

Utility Function

A mathematical representation of how consumers rank different bundles of goods or services according to their level of satisfaction or utility.

Budget Constraint

The limitation on the consumption bundles that a consumer can afford given their income and the prices of goods.

Optimum Market Basket

The combination of goods and services that maximizes a consumer’s utility for a given income and prices, representing the most preferred point on their budget line.

Indifference Curves

Graphical representations in microeconomics showing combinations of two goods that give a consumer equal satisfaction and utility.