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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Product decisions under bottlenecked operations

Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass 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 $85,000 for the company as a whole. In addition, the following information is available about the three products:

  Large Medium Small
Unit selling price $184 $160 $100
Unit variable cost 130 120 76
Unit contribution margin $ 54 $ 40 $ 24
Autoclave hours per unit 3 2 1
Total process hours per unit 5 4 2
Budgeted units of production 3,000 3,000 3,000

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 tile most profitable per bottleneck hour.

a)

To determine

Production Bottleneck: Production Bottleneck is a situation of constraint in the manufacturing company, where the demand for goods is higher, than the production capacity of the company. In this situation the production or contribution per bottleneck hour is calculated to determine the value of a product.

To Determine: The contribution margin by glass type and total company income from operations for the budgeted units of production for Company YG.

Explanation

Determine the contribution margin by glass type and total company income from operations for Company YG.

Large Medium Small Total
Units Produced 3,000 3,000 3,000
Revenue (1) $552,000 (2) $480,000 (3) $300,000 $1,332,000
Less: Variable costs (4) $390,000 (5) $360,000 (6) $228,000 $978,000
Contribution Margin $162,000 $120,000 $72,000 $354,000
Less: Fixed Costs $85,000
Income from Operation $269,000

Hence, the contribution margin by glass type and total company income from operations for Company YG is as follows

Large safety plate glass: $162,000

Medium safety plate glass: $120,000

Small safety plate glass: $72,000

Income from the Operations: $269,000

Working Note:

Calculate the revenue from large safety plate glass.

Revenue = Number of Units × Sales price per unit= 3,000 × $184= $552,000

(1)

Calculate the revenue from medium safety plate glass.

Revenue = Number of Units × Sales price per unit= 3,000 × $160= $480,000

(2)

Calculate the revenue from small safety plate glass

b)

To determine

To Prepare: The analysis for Company YG, to find the product which is most profitable per production bottleneck hour.

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