Product Decisions Under Bottlenecked Operations
Mill Metals Inc. has three grades of met...
Business, 06.05.2020 00:46 echavarrianoah
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?
Determining the unit contribution margin per furnace hour will assist in making your decision. Round the unit contribution margin to two decimal places.
Unit contribution margin per furnace hour
Type 5
Type 10
Type 20
Answers: 2
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