StoreAll produces plastic storage bins for household storage needs. Regular Larg

Question

StoreAll produces plastic storage bins for household storage needs.

Regular

Large

Sales price per unit

$9.00

$10.50

Variable costs per unit

3.20

4.50

The company makes two sizes of? bins: large? (50 gallon) and regular? (35 gallon). Demand for the products is so high that StoreAll 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 3,000 hours per period. StoreAll can produce 99 large bins every? hour, whereas it can produce 16 regular bins in the same amount of time. Fixed costs amount to $110,000 per period.

1.

StoreAllStoreAll

?emphasize? Why? Complete the product mix analysis to determine the contribution margin per machine hour.

StoreAll

Product Mix Analysis

Regular

Large

Sales price per unit

Variable cost per unit

Contribution margin per unit

Units per machine hour

x

x

Contribution margin per machine hour

2.

StoreAllStoreAll

3.

Given this product? mix, what will the? company's operating income? be?

1.

Which product should

StoreAllStoreAll

?emphasize? Why? Complete the product mix analysis to determine the contribution margin per machine hour.

StoreAll

Product Mix Analysis

Regular

Large

Sales price per unit

Variable cost per unit

Contribution margin per unit

Units per machine hour

x

x

Contribution margin per machine hour

2.

To maximize? profits, how many of each size bin should

StoreAllStoreAll

?produce?

3.

Given this product? mix, what will the? company's operating income? be?

Explanation / Answer

1. Contribution Margin per Hour:

The production of the regular bin should be emphasized as the contribution margin per hour is greater, specially so since its demand is elastic.

2. The company should produce 16 x 3,000 = 48,000 regular bins per period for maximizing profits.

3. That would yield an operating income of 48,000 x $ 5.80 - $ 110,000 = $ 168,400 per period.

Regular Large Sales Price per Unit $ 9.00 $ 10.50 Variable Cost per Unit 3.20 4.50 Contribution Margin per Unit 5.80 6.00 Unirs per Machine Hour 16 9 Contribution Margin per Machine Hour 92.80 54.00

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