Question

Ch 25-3

Score: 0 of 10 pts 3 of 5 0 completely HW Score: 0% 0 of 36 pis S25-5 (similar to) Best on teip Storage Solutions produces plastic storage bins for household storage needs Cick the icon to view additional information) Sales prices and amable costs are as fotos (Click the icon to wew the costs Read the ents Requirement 1. Which product should Storage Solutions emphasize? Why? Complete the product mix analysis to determine the contribution margin per machine hour Storage Solutions Product Mix Analysis Sales price per un Variabel por un Contributor ma per unit Unils per machine nou Contribution margin per mancare hour Enter any number in the edit felds and then click Check Answer

Answer 1

Answer 1)

Calculation of Contribution margin per hour

Particulars	Regular (35 gallons)	Large (50 gallons)
Sales Price per unit	$ 8.30	$ 10.80
Variable Costs per unit	$ 3.70	$ 4.10
Contribution margin per unit	$ 4.60	$ 6.70
Units per machine hour	16 units	10 units
Contribution per hour	$ 73.60 per machine hour	$ 67.00 per machine hour

Decision: In the given question that both product use the same machine and machine capacity is limited to 3,500 machine hours. And since demand of both products is unlimited, machine hours are the limiting factor or Key Factor. That product will be manufactured which provides maximum contribution per machine hour.

From the perusal of above table it can be concluded that since contribution per machine hour of Regular Bin (i.e. $ 73.60 per machine hour) is higher than that of Large Bin (i.e. $ 67.00 per machine hour), maximum possible units of “Regular Bin” should be produced with the available machine hours to maximise overall profits.

Working Notes:

Contribution per machine hour = (Number of units of the product that can be produced in one machine hour X Contribution per unit of that product)

Regular:

Contribution per machine hour = 16 units per machine hour X $ 4.60 per unit

                                                         = $ 73.60 per machine hour

Large:

Contribution per machine hour = 10 units per machine hour X $ 6.70 per unit

                                                         = $ 67.00 per machine hour

Answer 2)

Calculation of number of units of each product that should be manufactured to maximise overall profits

As calculated in Answer 1, since the contribution per machine hours of Regular Bin is higher than that of Large bin and the demand for each bin is unlimited, all machine hours should be used to manufacture maximum possible units of “Regular Bin”.

Units of Regular Bin to be manufactured = Total machine hours X number of units per machine hour

                                                                        = 3,500 machine hours X 16 per machine hours

                                                                       = 56,000 units

Therefore 56,000 units of “Regular Bins” should be produced to maximise profits. Also, as the machine hours are limited, no unit of “Large Bin” will be manufactured.

Answer 3)

Calculation of operating Income of the company from the manufacture of 56,000 units of “Regular Bins”

Particulars	Per unit	Total (for 56,000 units)
Sales Price	$ 8.30	$ 464,800
Less: Variable Costs	$ 3.70	$ 207,200
Contribution margin	$ 4.60	$ 257,600
Less: Total Fixed Cost		$ 95,000
Net Operating Income		$ 162,600

Therefore the operating income of the company will be $ 162,600