Newbury Printers operates a printing press with a monthly capacity of 3,200 machine-hours. Newbury has two main customers: Wallace Corporation and Kimberly Corporation. Data on each customer for January are: IT) Kimberly Corporation $160,000 112,000 48,000 Wallace Corporation $240,000 Total Revenues $400,000 Variable costs 129,600 241,600 Contribution margin Fixed costs (allocated) 110,400 158,400 75,000 $ 35,400 2,400 hours 50,000 Operating income Machine-hours required $ (2,000) 800 hours 125,000 $ 33,400 3,200 hours Kimberly Corporation indicates that it wants Newbury to do an additional $160,000 worth of printing jobs during February. These jobs are identical to the existing business Newbury did for Kimberly in January in terms of variable costs and machine-hours required. Newbury anticipates that the business from Wallace Corporation in February will be the same as that in January. Newbury can choose to accept as much of the Wallace and Kimberly business for February as its capacity allows. Assume that total machine-hours and fixed costs for February will be the same as in January. What action should Newbury take to maximize its operating income? Show your calculations. What other factors should Newbury consider before making a decision?
Newbury Printers operates a printing press with a monthly capacity of 3,200 machine-hours. Newbury has two main customers: Wallace Corporation and Kimberly Corporation. Data on each customer for January are: IT) Kimberly Corporation $160,000 112,000 48,000 Wallace Corporation $240,000 Total Revenues $400,000 Variable costs 129,600 241,600 Contribution margin Fixed costs (allocated) 110,400 158,400 75,000 $ 35,400 2,400 hours 50,000 Operating income Machine-hours required $ (2,000) 800 hours 125,000 $ 33,400 3,200 hours Kimberly Corporation indicates that it wants Newbury to do an additional $160,000 worth of printing jobs during February. These jobs are identical to the existing business Newbury did for Kimberly in January in terms of variable costs and machine-hours required. Newbury anticipates that the business from Wallace Corporation in February will be the same as that in January. Newbury can choose to accept as much of the Wallace and Kimberly business for February as its capacity allows. Assume that total machine-hours and fixed costs for February will be the same as in January. What action should Newbury take to maximize its operating income? Show your calculations. What other factors should Newbury consider before making a decision?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Newbury Printers operates a printing press with a monthly capacity of 3,200
machine-hours. Newbury has two main customers: Wallace Corporation and Kimberly Corporation. Data on
each customer for January are:
IT)
Kimberly Corporation
$160,000
112,000
48,000
Wallace Corporation
$240,000
Total
Revenues
$400,000
Variable costs
129,600
241,600
Contribution margin
Fixed costs (allocated)
110,400
158,400
75,000
$ 35,400
2,400 hours
50,000
Operating income
Machine-hours required
$ (2,000)
800 hours
125,000
$ 33,400
3,200 hours
Kimberly Corporation indicates that it wants Newbury to do an additional $160,000 worth of printing jobs
during February. These jobs are identical to the existing business Newbury did for Kimberly in January in
terms of variable costs and machine-hours required. Newbury anticipates that the business from Wallace
Corporation in February will be the same as that in January. Newbury can choose to accept as much of the
Wallace and Kimberly business for February as its capacity allows. Assume that total machine-hours and
fixed costs for February will be the same as in January.
What action should Newbury take to maximize its operating income? Show your calculations. What
other factors should Newbury consider before making a decision?
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