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iPad 10:21 AM 88% D chrome for Mobil × ' D chrome for Mobil × ' D Chrome for Mobil ×Course Material f × Grano, D C httpsviewer.gcu.edu/PMHO9W 109 % 507 of 778 Short-Term Business Decisions 1419 E25-15 Making product mix decisions Learning Objective 3 Tread Mile produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Tread Mile could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models are as follows 2. CM per M, Regular $393 Per Unit Deluxe Regular 1,040 570 Sales Price Costs 300 78 276 120 115 889 90 190 92 40 67 479 91 Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Variable Operating Expenses Total Costs Operating Income allocated on the basis of machine hours Requirements 1. What is the constraint? 2. Which model should Tread Mile produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the each product.) proportion of machine hours used by 3. If Tread Mile should produce both models, compute the mix that will maximize operating income E25-16 Making sales mix decisions Learning Objective 3

Explanation / Answer

Ans;

1. Machine Hours is the constraint. As with the available machine hour we can produce only one of the model. 2 Statement showing Particulars Per Unit Per Unit Deluxe Regular a. Sale Price 1040 570 Cost b.Direct Materials 300 90 c.Direct Labours 78 190 d.Variable Manufacturing Overhead 276 92 e.Fixed Manufacturing Overhead 120 40 f.Variable Operating Expenses 115 67 g.Total Cost (b+c+d+e+f) 889 479 Operating Profit (a-g) 151 91 Equivalent Operating Profit in term of machine hour 151/3 91/1 50.3333 91 Since Equivalent Operating Profit in term of machine hour is more in Regular. Then Regular Model should be produced. 3 Since the machine hour available is constraint and not available in abundance. And equivalent Operating Profit in term of machine hour in regular model is more. Then in order to maximise operating profit regular model should only be produced.

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