Pennsylvania Glass Company manufactures three types of safety plate glass: large

Question

Pennsylvania Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Pennsylvania 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 $208,000 for the company as a whole. In addition, the following information is available about the three products:

a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production.

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 Unit selling price $80 $165 $349 Unit variable cost 63 135 307 Unit contribution margin $ 17 $ 30 $ 42 Autoclave hours per unit 2 4 6 Total process hours per unit 6 8 18 Budgeted units of production 5,200 5,200 5,200

Explanation / Answer

A Large Medium Small Total Units Produced 5200 5200 5200 15600 Revenues 416000 858000 1814800 3088800 Less: Variable cost 327600 702000 1596400 2626000 Contribution 88400 156000 218400 462800 Less: Fixed Cost 208000 Income from Operations 254800 B Large Medium Small Contribution Margin 17 30 42 Autoclave hrs per unit 2 4 6 Unit contribution margin/bottlenech hour 8.5 7.5 7

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