Product Decisions Under Bottlenecked Operations Pennsylvania Glass Company manuf
ID: 1119209 • Letter: P
Question
Product Decisions Under Bottlenecked Operations
Pennsylvania Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Pennsylvania Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $143,000 for the company as a whole. In addition, the following information is available about the three products:
a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production.
b. Prepare an analysis showing which product is the most profitable per bottleneck hour. Round the "Unit contribution margin per production bottleneck hour" amounts to the nearest cent.
Large Medium Small Unit selling price $324 $83 $315 Unit variable cost 255 68 277 Unit contribution margin $ 69 $ 15 $ 38 Autoclave hours per unit 6 2 4 Total process hours per unit 18 4 8 Budgeted units of production 2,600 2,600 2,600Explanation / Answer
A
Large
Medium
Small
Total
Units produced
2600
2600
2600
7800
Revenues (324,83,315 p.u.)
842400
215800
819000
1877200
Less: Variable cost (255,68,277 p.u)
663000
176800
720200
1560000
Contribution (69,15,38 p.u.)
179400
39000
98800
317200
Less: Fixed Cost
143000
Income from operations
174200
B
Large
Medium
Small
Contribution Margin (a)
69
15
38
Autoclave hrs per unit (b)
6
2
4
Unit contribution margin per
production bottleneck hour (a/b)
11.5
7.5
9.5
A
Large
Medium
Small
Total
Units produced
2600
2600
2600
7800
Revenues (324,83,315 p.u.)
842400
215800
819000
1877200
Less: Variable cost (255,68,277 p.u)
663000
176800
720200
1560000
Contribution (69,15,38 p.u.)
179400
39000
98800
317200
Less: Fixed Cost
143000
Income from operations
174200
B
Large
Medium
Small
Contribution Margin (a)
69
15
38
Autoclave hrs per unit (b)
6
2
4
Unit contribution margin per
production bottleneck hour (a/b)
11.5
7.5
9.5
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