StoreAll produces plastic storage bins for household storage needs. The companymakes two sizes of bins: large (50 gallon) and regular (35 gallon). Demand for theproducts is so high that StoreAll can sell as many of each size as it can produce. Thecompany uses the same machinery to produce both sizes. The machinery can be runfor only 3,300 hours per period. StoreAll can produce 10 large bins every hour,whereas it can produce 17 regular bins in the same amount of time. Fixed costsamount to $115,000 per period. Sales prices and variable costs are as follows:RegularLargeSales price per unit$ 8.00$ 10.40Variable costs per unit3.504.40Requirements1. Which product should StoreAll emphasize? Why?2. To maximize profits, how many of each size bin should StoreAll produce?3. Given this product mix, what will the company's operating income be?

Contribution Margin: The process or theory which is used to judge the benefit given by each unit of the goods produced is called as contribution margin.1. If there is a constraint faced while concerning the product that must be emphasized, the decision rule in this case is to emphasize the product with the highest contribution margin per unit of constraint. Regular bins have a greater contribution margin per machine hour, $76.50 (1), than large bins, $60.00 (1). Company S will have a greater profit by producing regular bins; therefore, this product should be emphasized. Working Note (1): 2. State the number of bins should Company S must produce in order to maximize profits. Calculate the number of regular basis. Company S must make 56,100 regular bins and zero large bins, to maximize profits. 3. Calculate the amount of operating income.

Answered: 1. Which product should StoreAll…

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1. Which product should StoreAll emphasize? Why? 2. To maximize profits, how many of each size bin should StoreAll produce? 3. Given this product mix, what will the company's operating income be?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

StoreAll produces plastic storage bins for household storage needs. 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 be run
for only 3,300 hours per period. StoreAll can produce 10 large bins every hour,
whereas it can produce 17 regular bins in the same amount of time. Fixed costs
amount to $115,000 per period. Sales prices and variable costs are as follows:
Regular
Large
Sales price per unit
$ 8.00
$ 10.40
Variable costs per unit
3.50
4.40
Requirements
1. Which product should StoreAll emphasize? Why?
2. To maximize profits, how many of each size bin should StoreAll produce?
3. Given this product mix, what will the company's operating income be?

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