Chapter 25, Problem E25.15E

Making product mix decisions

Learning Objective 3

2. CM per MHr, Regular $441

Tread Light produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Tread Light could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models are as follows:

	Per Unit
	Deluxe	Regular
Sales price	$1,030	$610
Costs:
Direct materials	320	130
Direct labor	88	180
Variable manufacturing overhead	270	90
Fixed manufacturing overhead*	102	34
Variable operating expenses	121	63
Total costs	901	497
Operating income	$ 129	$ 113

Requirements

1. What is the constraint?

2 Which model should Tread Light produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.)

3. If Tread Light should produce both models, compute the mix that will maximize operating income.