Question

Park Printers operates a printing press with a monthly capacity of 3,200 machine-hours. Park has two main customers: Scott Corporation and Margaret Corporation. Data in each customer for Januray are:

e the allod 0 Data Table Total Scott Corporation Margaret Corporation 168,000 $ 112,000 $ 33,600 57,600 Revenues 280,000 91,200 Variable costs Contribution margin 134,400 102,000 54,400 68,000 (13,600) $ 188,800 170,000 Fixed costs (allocated) 32,400 $ 18,800 Operating income Machine-hours required 2,400 hours 800 hours 3,200 hours Print Done

Margaret Corporation indicates that it wants Park to do an additional $112,000 worth if printing jobs during February. These jobs are identical to the existing business Park did for Maragret in January in terms of variable costs and machine-hours required. Patk anticipates that the business from Scott Corporation in February will be the same as that in January. Park can choose to accept as much of the Scott and Margaret business for February as its capacity allows. Assume that total machine-hours and fixed costs for February will be the same as in January.

Begin by calculating the amount of should be used to determine the allocation.

What action should Park take to maximize its operating income? Show your calculations. What other factors should Park consider before making a decision?

Answer 1

	Scott Corporation	Margaret Corporation	Total
Revenues	1,68,000	1,12,000	2,80,000
Variable Costs	(33,600)	(57,600)	(91,200)
Contribution Margin	1,34,400	54,400	1,88,800
Machine Hours Used	2400	800	3,200
Contribution Margin per Machine Hour($)	56	68
Ranking of Production	2nd	1st
Machine Hours Allocated	1600	1600	3,200
Contribution Margin earned as per proposed allocation	89600	108800	1,98,400
Fixed Cost (allocated)	102000	68000	1,70,000
Revised Net Operating Income	-12400	40800	28400

Since machine hours is limited park printers should produce maximum for the customer that yields maximum contribution margin per machine hour. Thus in this case Margaret Corpration yields $ 68 CM per MH while Scott yields $56 per MH. So first 1600 MH allocated to Margaret to fulfill its demand and remaining were allocated to Scott Corporation.

There is increase in overall income of Park Printers by $ 9,600 (28400-18800)