(L.OBJ. 3) Making dropping a product and product-mix decisions [15 min] Store It produc...

(L.OBJ. 3) Making dropping a product and product-mix decisions [15 min]

Store It 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 Store-It can sell as many of each size as it can produce. The company uses the same machinery to produce both sizes. The machinery can only be run for 3,400 hours per period. Store-It can produce 10 large bins every hour, whereas it can produce 17 regular bins in the same amount of time. Fixed costs amount to $105,000 per period. Sales prices and variable costs are as follows:

Requirements

1. Which product should Store-It emphasize? Why?

2. To maximize profits, how many of each size bin should Store-It produce?

3. Given this product mix, what will the company’s operating income be?