Additional Processing Decision with a production Contraint.

Mega Chemical Company produces ZylexA and a related product called Zylex B. Zylex B, which sells for $16.00 per gallon, is made froma base of ZylexA plus additional ingredients. It takes 30 minutes to manufacture a gallon of ZylexA and an additional 15 minutes to manufacture a gallon ZylexB. ZylexA sells for $10.00 per gallon. The cost per gallon of manufacturing ZylexA and the additonal cost to convert it into ZylexB are Material:ZylexA$2.50 ZylexB $2.00 Labor:ZylexA $3.00 ZylexB $.80 VariableOverHead:ZylexA$2.75 ZylexB $1.30. Since it takes additional time to manufacture ZylexB, the president of production is trying to determine whether ZylexB should be produced. Which product makes the largest contribution to company profit, given a capacity constraint measured in terms of production time? Show MATH Please!!! ZylexA $10.00

Selling price Less: Material $2.50 Labor 3.00 Variable overhead 2.75 Contribution margin Time to produce in minutes Contribution margin per minute ($1.75/30) Incremental revenue ($16.00 10.00) Less: Incremental material cost Incremental labor cost Incremental variable overhead Incremental profit (loss) Incremental time to produce in minutes Incremental profit per minute

8.25 $1.75 30 minutes $0.058 ZylexB $6.00 $2.00 .80 1.30 4.10 $1.90 15 minutes $.1267

There is no question that ZylexA has to be produced, because the company cannot make ZylexB without starting with ZylexA. The question is, If you have a unit of ZylexA, should you take up production time converting it into ZylexB or should you just make more ZylexA? The analysis indicates that production of ZylexB increases profit at a rate of $.1267 per minute. Thus, ZylexB should be produced.