Chapter 19, Problem 19.35P

Manufacturing cycle times, relevant revenues, and relevant costs. The DJ Corporation makes custom specified wire harnesses for the trucking industry only upon receiving firm orders from its customers. DJ has recently purchased a new machine to make two types of wire harnesses, one for Peterbilt and the other for Kenworth. The annual capacity of the new machine is 5,000 hours. The following information is available for next year:

1. 1. Calculate the average manufacturing cycle times per order (a) if DJ manufactures only Peterbilt and (b) if DJ manufactures both Peterbilt and Kenworth.

Required

1. 2. Even though Kenworth has a positive contribution margin, DJ’s managers are evaluating whether DJ should (a) make and sell only Peterbilt or (b) make and sell both Peterbilt and Kenworth. Which alternative will maximize DJ’s operating income? Show your calculations.
2. 3. What other factors should DJ consider in choosing between the alternatives in requirement 2?