Chapter 25, Problem 5SE

StoreAll produces plastic storage bins for household storage needs. The company makes two sizes of bins: large (50 gallon) and regular (35 gallon). Demand for the products is so high that StoreAll can sell as many of each size as it can produce. The company uses the same machinery to produce both sizes. The machinery can be run for only 3,300 hours per period. StoreAll can produce 10 large bins every hour, whereas it can produce 17 regular bins in the same amount of time. Fixed costs amount to $115,000 per period. Sales prices and variable costs are as follows:

Requirements

1. 1. Which product should StoreAll emphasize? Why?
2. 2. To maximize profits, how many of each size bin should StoreAll produce?
3. 3. Given this product mix, what will the company’s operating income be?