The Constraint at Dreyfus Incorporated Is an Expensive Milling Machine

question 161

Essay

The constraint at Dreyfus Incorporated is an expensive milling machine. The three products listed below use this constrained resource.
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?

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Definitions:

Economic Profits

The financial difference between what a business earns in total revenue and what it spends, considering both explicit and indirect costs.

Implicit Costs

The opportunity costs involved in using resources that a firm already owns, for which it does not make a direct payment.

Accounting Profits

The total revenue of a business minus the explicit costs associated with producing goods or services, not accounting for implicit costs.

Economic Profits

The variance between a company's overall earnings and the sum of its explicit and implicit expenditures.