Question

Need help with S8-10

58-10 Product mix decision: Limited demand (Learning Objective 5) Consider Storage Solutions from $8-9. Assume that demand for Regular bins is limited to 36,000 units and demand for Large bins is limited to 25,000 units. 1. How many of each size bin should the company make now? Given this product mix, what will be the company's operating income? s. Explain why the operating income is less than it was when the company was produce ing its optimal product mix. learning Objectives 1 & 6) the-

Answer 1

1.

	Regular	Large
Sale price per unit	$       8.10	$    10.50
Variable Cost per unit	$       3.50	$       4.20
	$       4.60	$       6.30
Per hour production	15	10
Contribution per hour	$    69.00	$    63.00

The company must emphasize on REGULAR bins since the contribution per hour is more than Large bins.

2.

Since the company an sell as many products as possible, the company should only produce REGULAR bins

The total products would be 3,000 X 15 = 45,000 Regular bins

3.

	Regular	Large	Total
Sale price per unit	$   364,500.00	$           -	$   364,500.00
Variable Cost per unit	$   157,500.00	$           -	$   157,500.00
Contribution	$   207,000.00	$           -	$   207,000.00
Fixed Expenses			$   110,000.00
Operating Income			$     97,000.00

1.

The company should make all 36,000 of regular bins since these are giving maximum contribution

15 bins can be made in an hour. So, total hours used will be 36,000 / 15 = 2,400 hours
Number of hours left for Large bins are 600 hours.
Number of large bins that can be produced are 600 X 10 = 6,000 bins

Regular 36,000
Large 6,000

2.

	Regular	Large	Total
Sale price per unit	$   291,600.00	$     63,000.00	$   354,600.00
Variable Cost per unit	$   126,000.00	$     25,200.00	$   151,200.00
Contribution	$   165,600.00	$     37,800.00	$   203,400.00
Fixed Expenses			$   110,000.00
Operating Income			$     93,400.00

3.

The operating income is lesser in this case because the number of Regular bins are less and Regular bins give more contribution per hour than large bins.