Product Decisions Under Bottlenecked Operations Mill Metals Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows: Type 5 Type 10 Type 20 Revenues $43,000 $49,000 $56,500 Variable cost $34,000 $28,000 $26,500 Fixed cost 8,000 8,000 8,000 Total cost $42,000 $36,000 $34,500 Income from operations $ 1,000 $13,000 $22,000 Number of units ÷ 5,000 ÷ 5,000 ÷ 5,000 Income from operations per unit $ 0.20 $ 2.60 $ 4.40 Mill's operations require all three grades to be melted in a furnace before being formed. The furnace runs 24 hours a day, 7 days a week, and is a production bottleneck. The furnace hours required per unit of each product are as follows: Type 5: 6 hours Type 10: 6 hours Type 20: 12 hours The Marketing Department is considering a new marketing and sales campaign. Which product should be emphasized in the marketing and sales campaign in order to maximize profitability? Type 10 Determining the unit contribution margin per furnace hour will assist in making your decision. Round the unit contribution margin to two decimal places. Type 5 Type 10 Type 20 Unit contribution margin per furnace hour $ $ $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Product Decisions Under Bottlenecked Operations

Mill Metals Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows:

	Type 5	Type 10	Type 20
Revenues	$43,000		$49,000	$56,500
Variable cost	$34,000		$28,000	$26,500
Fixed cost	8,000		8,000	8,000
Total cost	$42,000		$36,000	$34,500
Income from operations	$ 1,000		$13,000	$22,000
Number of units	÷ 5,000		÷ 5,000	÷ 5,000
Income from operations per unit	$ 0.20		$ 2.60	$ 4.40

Mill's operations require all three grades to be melted in a furnace before being formed. The furnace runs 24 hours a day, 7 days a week, and is a production bottleneck. The furnace hours required per unit of each product are as follows:

Type 5:	6 hours
Type 10:	6 hours
Type 20:	12 hours

The Marketing Department is considering a new marketing and sales campaign.

Which product should be emphasized in the marketing and sales campaign in order to maximize profitability?
Type 10

Determining the unit contribution margin per furnace hour will assist in making your decision. Round the unit contribution margin to two decimal places.

	Type 5		Type 10		Type 20
Unit contribution margin per furnace hour	$		$		$

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