Garson, Inc

question 193

Essay

Garson, Inc.produces three products.Data concerning the selling prices and unit costs of the three products appear below: Fixed costs are applied to the products on the basis of direct labor hours.
Demand for the three products exceeds the company's productive capacity.The milling machine is the constraint, with only 2,400 minutes of milling machine time available this week.

Required:
a.Given the milling machine constraint, which product should be emphasized? Support your answer with appropriate calculations.
b.Assuming that there is still unfilled demand for the product that the company should emphasize in part (a)above, up to how much should the company be willing to pay for an additional hour of milling machine time?

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Definitions:

Compounded Annually

The process of earning interest on both the initial principal and the accumulated interest from previous periods, calculated once a year.

Annuity Growth Rate

The annual rate at which the value of an annuity investment increases, often fixed or variable depending on the annuity contract.

Cash Flow Growth Rate

The rate at which a company's cash flow increases or decreases over a specific period.

Required Rate

The minimum rate of return that an investor expects or requires from an investment to make it worthwhile.