Question

58-8 (similar to) ContainAll produces plastic storage bins for household storage needs. The company makes two sizes of bins: Large (50 gallon) and Regular (35 gallon). Demand for the product is so high that the company can sell as many of each size as it can produce. The same machinery is used to produce both sizes. The machinery is available for only 3,200 hours per period. The company can produce 9 Large bins every hour compared to 15 Regular bins in the same amount of time. Fixed expenses amount to $115,000 per period. Sales prices and variable costs are as follows: Regular Large Sales price per unit $ 8.80 $ 10.90 Variable cost per unit $ 3.50 $ 4.10 Requirements: 1. Which product should ContainAll emphasize? Why? 2. To maximize profits, how many of each size bin should the company produce? 3. Given this product mix, what will the company's operating income be?

Answer 1

R 9 Units produced/hr Hours Total units produced 3200 28800 15 3200 48000 Sale price Variable Cost 253440 523200 100800 196800 152640 326400 115000 115000 37640211400 Fixed Cost Profit So, it will be profitable to invest in Regular Bin 2 Time is the limiting factor. So, we need to determine the optimal mix on the basis of this factor only Sale price VC Contribution/ unit (A) Unit produced in an hour (B) Contribution/hour (A)*(B) 8.8 3.5 5.3 10.9 4.1 6.8 9 15 47.7 102 RANK 1 As Regular Bin is providing more contribution, it is profitable to produce more units of R