roduct Mix Decisions Calen Company manufactures and sells three products in a factory of three departments. Both labor and machine time are applied to the products as they pass through each department. The nature of the machine processing and of the labor skills required in each department is such that neither machines nor labor can be switched from one department to another. Calen's management is attempting to plan its production schedule for the next several months. The planning is complicated by the fact that labor shortages exist in the community and some machines will be down several months for repairs. Following is information regarding available machine and labor time by department and the machine hours and direct labor hours required per unit of product. These data should be valid for at least the next six months. Department Monthly Capacity 1 2 3 Labor hours available 3,700 4,500 2,750 Machine hours available 3,000 3,100 2,700 Product Input per Unit Produced 1 2 3 401 Labor hours 2 3 3 Machine hours 1 1 2 402 Labor hours 1 2 — Machine hours 1 1 — 403 Labor hours 2 2 2 Machine hours 2 2 1 Calen believes that the monthly demand for the next six months will be as follows: Product Units Sold 401 500 402 400 403 1,000 Inventory levels will not be increased or decreased during the next six months. The unit cost and price data for each product are as follows: Product 401 402 403 Unit costs: Direct material $7 $13 $17 Direct labor 66 38 51 Variable overhead 27 20 25 Fixed overhead 15 10 32 Variable selling 3 2 4 Total unit cost $118 $83 $129 Unit selling price $196 $123 $167 Required: 1. Calculate the monthly requirement for machine hours and direct labor hours for producing Products 401, 402, and 403. Labor hours Machine hours Product 401 Product 402 Product 403 Total Which departments can meet the monthly sales demand? 2. Determine the quantities of 401, 402, and 403 that should be produced monthly to maximize profits. Prepare a schedule that shows the contribution to profits of your product mix. Calen Company Product Mix and Contribution Margin Product Number of Units Contribution to profits Product 401 Product 402 Product 403 Total contribution margin

roduct Mix Decisions Calen Company manufactures and sells three products in a factory of three departments. Both labor and machine time are applied to the products as they pass through each department. The nature of the machine processing and of the labor skills required in each department is such that neither machines nor labor can be switched from one department to another. Calen's management is attempting to plan its production schedule for the next several months. The planning is complicated by the fact that labor shortages exist in the community and some machines will be down several months for repairs. Following is information regarding available machine and labor time by department and the machine hours and direct labor hours required per unit of product. These data should be valid for at least the next six months. Department Monthly Capacity 1 2 3 Labor hours available 3,700 4,500 2,750 Machine hours available 3,000 3,100 2,700 Product Input per Unit Produced 1 2 3 401 Labor hours 2 3 3 Machine hours 1 1 2 402 Labor hours 1 2 — Machine hours 1 1 — 403 Labor hours 2 2 2 Machine hours 2 2 1 Calen believes that the monthly demand for the next six months will be as follows: Product Units Sold 401 500 402 400 403 1,000 Inventory levels will not be increased or decreased during the next six months. The unit cost and price data for each product are as follows: Product 401 402 403 Unit costs: Direct material $7 $13 $17 Direct labor 66 38 51 Variable overhead 27 20 25 Fixed overhead 15 10 32 Variable selling 3 2 4 Total unit cost $118 $83 $129 Unit selling price $196 $123 $167 Required: 1. Calculate the monthly requirement for machine hours and direct labor hours for producing Products 401, 402, and 403. Labor hours Machine hours Product 401 Product 402 Product 403 Total Which departments can meet the monthly sales demand? 2. Determine the quantities of 401, 402, and 403 that should be produced monthly to maximize profits. Prepare a schedule that shows the contribution to profits of your product mix. Calen Company Product Mix and Contribution Margin Product Number of Units Contribution to profits Product 401 Product 402 Product 403 Total contribution margin

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Product Mix Decisions

Calen Company manufactures and sells three products in a factory of three departments. Both labor and machine time are applied to the products as they pass through each department. The nature of the machine processing and of the labor skills required in each department is such that neither machines nor labor can be switched from one department to another.

Calen's management is attempting to plan its production schedule for the next several months. The planning is complicated by the fact that labor shortages exist in the community and some machines will be down several months for repairs.

Following is information regarding available machine and labor time by department and the machine hours and direct labor hours required per unit of product. These data should be valid for at least the next six months.

	Department
Monthly Capacity	1	2	3
Labor hours available	3,700	4,500	2,750
Machine hours available	3,000	3,100	2,700

Product	Input per Unit Produced	1	2	3
401	Labor hours	2	3	3
	Machine hours	1	1	2
402	Labor hours	1	2	—
	Machine hours	1	1	—
403	Labor hours	2	2	2
	Machine hours	2	2	1

Calen believes that the monthly demand for the next six months will be as follows:

Product	Units Sold
401	500
402	400
403	1,000

Inventory levels will not be increased or decreased during the next six months. The unit cost and price data for each product are as follows:

	Product
		401	402	403
Unit costs:
Direct material		$7	$13	$17
Direct labor		66	38	51
Variable overhead		27	20	25
Fixed overhead		15	10	32
Variable selling		3	2	4
Total unit cost		$118	$83	$129
Unit selling price		$196	$123	$167

Required:

1. Calculate the monthly requirement for machine hours and direct labor hours for producing Products 401, 402, and 403.

	Labor hours	Machine hours
Product 401
Product 402
Product 403
Total

Which departments can meet the monthly sales demand?

2. Determine the quantities of 401, 402, and 403 that should be produced monthly to maximize profits. Prepare a schedule that shows the contribution to profits of your product mix.


Calen Company
Product Mix and Contribution Margin
Product	Number of Units	Contribution to profits
Product 401
Product 402
Product 403
Total contribution margin

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