Question

Product Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $252,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $75 $363 $249 Unit variable cost 59 297 219 Unit contribution margin $ 16 $ 66 $ 30 Autoclave hours per unit 2 6 4 Total process hours per unit 6 12 12 Budgeted units of production 5,000 5,000 5,000 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium Small Total Units produced Revenues $ $ $ $ Variable costs Contribution margin $ $ $ $ Fixed costs Income from operations $ b. Prepare an analysis showing which product is the most profitable per bottleneck hour. Round the "Unit contribution margin per production bottleneck hour" amounts to the nearest cent. Large Medium Small Contribution margin $ $ $ Autoclave hours per unit Unit contribution margin per production bottleneck hour $ $ $

Answer 1

bottle neck is the constraint hours available. the product producing highest contribution per bottleneck hours will be produced first.

	Large	Medium	Small	Total
units produced	5000	5000	5000
Revenues	$375,000[$75*5000]	$1,815,000[$363*5000]	$1,245,000[$249*5000]	$3,435,000
Variable costs	$295,000[$59*5000]	$1,485,000[$297*5000]	$1,095,000[$219*5000]	$2,875,000
contribution margin [revenue-variable costs]	$80,000	$330,000	$150,000	$560,000
Fixed costs				$252,000
Income from operations				$308,000[$560,000-252,000]

we will find contribution margin per autoclave hour as it is the constraint(limited hours available)

	Large	Medium	Small
contribution margin	$80,000	$330,000	$150,000
Autoclave hours per unit	2	6	4
Unit contribution margin per production bottleneck hour $ $ $	$40,000[$80,000/2]	$55,000[$330,000/6]	$37,500[$150,000/4]

medium should be produced first than large and lastly if autoclave hours are available small should be produced as it has lowest cobtribution margin per autoclave hours.