Making product mix decisions
Learning Objective 3
2. CM per MHr, Regular $441
Tread Light produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Tread Light 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:
Per Unit | ||
Deluxe | Regular | |
Sales price | $1,030 | $610 |
Costs: | ||
Direct materials | 320 | 130 |
Direct labor | 88 | 180 |
Variable manufacturing |
270 | 90 |
Fixed manufacturing overhead* | 102 | 34 |
Variable operating expenses | 121 | 63 |
Total costs | 901 | 497 |
Operating income | $ 129 | $ 113 |
Requirements
1. What is the constraint?
2 Which model should Tread Light produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.)
3. If Tread Light should produce both models, compute the mix that will maximize operating income.
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