ollins Company manufactures two products—S500 and T750. The company provided the following information with respect to these products: S500 T750 Estimated customer demand (in units) 5,600 4,000 Selling price per unit $ 2,400 $ 4,200 Variable expense per unit $ 1,400 $ 2,400 The company has four manufacturing departments—Fabrication, Molding, Machining, and Assemble & Pack. The capacity available in each department (in hours) and the demands that one unit of each of the company’s products makes on those departments is as follows: S500 (hours per unit) T750 (hours per unit) Capacity (in hours) Fabrication 1 2 4,000 Molding 2 2 6,000 Machining 2 0 5,000 Assemble & Pack 0 3 4,500
Rollins Company manufactures two products—S500 and T750. The company provided the following information with respect to these products:
| S500 | T750 | |
|---|---|---|
| Estimated customer demand (in units) | 5,600 | 4,000 |
| Selling price per unit | $ 2,400 | $ 4,200 |
| Variable expense per unit | $ 1,400 | $ 2,400 |
The company has four manufacturing departments—Fabrication, Molding, Machining, and Assemble & Pack. The capacity available in each department (in hours) and the demands that one unit of each of the company’s products makes on those departments is as follows:
| S500 (hours per unit) | T750 (hours per unit) | Capacity (in hours) | |
|---|---|---|---|
| Fabrication | 1 | 2 | 4,000 |
| Molding | 2 | 2 | 6,000 |
| Machining | 2 | 0 | 5,000 |
| Assemble & Pack | 0 | 3 | 4,500 |
The company is trying to decide what product mix will maximize profits. Given that its fixed costs will not change regardless of the chosen mix, the company plans to identify the product mix that maximizes its total contribution margin.
Assume the company focuses solely on producing S500:
a. Which department would be the constraint? (Hint: Focus on each department’s capacity (in hours) divided by S500’s “hours per unit” within each department.)
b. What is S500’s contribution margin per hour of the constraining resource that you identified in requirement 1a? (Hint: Calculate S500’s contribution margin per unit and divide it by the “hours per unit” for the department you identified in requirement 1a.)
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
