Question

Revenue 14,400,000 8,256,000 14,400,000 9,945,600 Total variable costs Contribution margin $ 6,144,000 $ 4,454,400 4,704,000 2,265,600 Total fixed costs $ 1,440,000 $ 2,188,800 Operating income Requirement 3. Determine how the production of 192,000 units should be allocated between the Peoria and Moline plants to maximize operating income for Portal Corporation. Show your calculations. (Use the contribution margin approach.) The optimal production plan is to produce 120,000 units at the Peoria plant and 72,000 units at the Moline plant. The full capacity of the Peoria plant should be used because the contribution margin from these units is higher than from units produced at the Moline plant. Now show your calculations. Begin by calculating the total contribution margin for the Peoria plant. (For amounts with a $0 balance, make sure to enter "O" in the appropriate cell.) Total Peoria Contribution margin per unit x Total variable costs = contribution margin Normal x Overtime X II Total Choose from any list or enter any number in the input fields and then click Check Answer. ?

Answer 1

Requirement 1 For computing the break-even point, fixed costs needs to be ascertained first. Fixed costs are computed based on the normal annual capacity. (a) Production rate per day (b) Normal annual capacity (c) Total normal production (a*b) (d) Fixed manufacturing cost p.u (e) Total Fixed manufacturing cost (c*d) (f) Fixed mkt and dist cost p.u (8) Total fixed mkt and dist cost (c*f) (h) Total fixed costs (e+g) $ $ $ $ $ Peoria 400 240 96000 30.00 $ 2,880,000 $ 19.00 $ 1,824,000 $ 4,704,000 $ Moline 320 240 76800 15.00 1,152,000 14.50 1,113,600 2,265,600 $ $ (a) Selling price per unit (b) Variable manufacturing cost per unit (c) Variable mkt and dist cost per unit (d) Contribution margin per unit (a-b-c) Peoria 150.00 $ 72.00$ 14.00 $ 64.00 $ Moline 150.00 88.00 14.00 48.00 $ $ $ (e) Total fixed costs (computed above) (f) Break-even point in units (e/d) 4,704,000 $ 73500 2,265,600 47200 Requirement 2 Peoria 96000 Moline 96000 (a) Production (b) Revenue (150*a) (c) Total Variable costs (86*a, 102*a) (d) Contribution margin (b-c) (e) Total fixed costs (f) Operating income (d-e) $ $ $ $ $ 14,400,000 $ 8,256,000 $ 6,144,000 $ 4,704,000 $ 1,440,000 $ 14,400,000 9,792,000 4,608,000 2,265,600 2,342,400

Requirement 3 The optimal production plan to produce 120,000 units at the Peoria Plant and 72,000 units at the Moline Plant. The full capacity of the Peoria Plant should be used because the contribution margin from these units is higher than from units produced at Moline Plant. Peoria Normal Overtime Total Contribution Contribution margin per unit * Units produced = margin $ 64.00 96000 $ 6,144,000 $ 64.00 24000 $ 1,536,000 $ 7,680,000 Moline Normal Overtime Total Contribution Contribution margin per unit * Units produced = margin $ 48.00 72000$ 3,456,000 $ 48.00 0 $ $ 3,456,000 Peoria 120000 Moline 72000 (a) Production (b) Revenue (150*a) (c) Total Variable costs (86*a, 102*a) (d) Contribution margin (b-c) (e) Total fixed costs (f) Operating income (d-e) $ $ $ $ $ 18,000,000 $ 10,320,000 $ 7,680,000 $ 4,704,000 $ 2,976,000 $ 10,800,000 7,344,000 3,456,000 2,265,600 1,190,400