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Unformatted text preview: roduct 1, with a contribution margin of \$24, or 2 units of Product 2, each with a contribution margin of \$15 per unit. 2 × \$15 = \$30 > \$24 10-59 Utilization of a Constrained Resource The key is the contribution margin per unit of the constrained resource. Ensign should emphasize Product 2 because it Ensign should emphasize Product 2 because it generates a contribution margin of \$30 per minute generates a contribution margin of \$30 per minute off the constrained resource relative to \$24 per o the constrained resource relative to \$24 per minute for Product 1. minute for Product 1. 10-60 Utilization of a Constrained Resource The key is the contribution margin per unit of the constrained resource. Ensign can maximize its contribution margin Ensign can maximize its contribution margin Ensign Ensign by first producing Product 2 to meet customer by first producing Product 2 to meet customer Product Product demand and then using any remaining demand and then using any remaining capacity to produce Product 1. The capacity to produce Product 1. The calculations would be performed as follows. calculations would be performed as follows. calculations calculations 10-61 Utilization of a Constrained Resource Let’s see how this plan would work. Alloting Our Constrained Resource (Machine A1) Weekly demand for Product 2 Time required per unit Total time required to make Product 2 × 2,200 units 0.50 min. 1,100 min. 10-62 Utilization of a Constrained Resource Let’s see how this plan would work. Alloting Our Constrained Resource (Machine A1) Weekly demand for Product 2 Time required per unit Total time required to make Product 2 Total time available Time used to make Product 2 Time available for Product 1 × 2,200 units 0.50 min. 1,100 min. 2,400 min. 1,100 min. 1,300 min. 10-63 Utilization of a Constrained Resource Let’s see how this plan would work. Alloting Our Constrained Resource (Machine A1) Weekly demand for Product 2 Time required per unit Total time required to make Product 2 Total time available Time used to make Product 2 Time available for Product 1 Time required per unit Production of Product 1 × 2,200 units 0.50 min. 1,100 min. ÷ 2,400 1,100 1,300 1.00 1,300 min. min. min. min. units 10-64 Utilization of a Constrained Resource According to the plan, we will produce 2,200 units of Product 2 and 1,300 of Product 1. Our contribution margin looks like this. Production and sales (units) Contribution margin per unit Total contribution margin Product 1 1,300 \$ 24 \$ 31,200 Product 2 2,200 \$ 15 \$ 33,000 The total contribution margin for Ensign is \$64,200. The 10-65 Learning Objective 6 Determine the value of obtaining more of the constrained resource. 10-66 Value of a Constrained Resource Increasing the capacity of a constrained resource should lead to increased production and sales. How much should Ensign be willing to pay for an additional minute of A1 machine time? 10-67 Value of a Constrained Resource The additional machine time would be used to make more uni...
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## This document was uploaded on 03/23/2014.

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