Product Decisions Under Bottlenecked Operations The Marketing Department is cons

Question

Product Decisions Under Bottlenecked Operations

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.

Type 5 Type 10 Type 20 Unit contribution margin: $ $ $
Product Decisions Under Bottlenecked Operations Eagle Alloys Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows: Eagle'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: 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.

Explanation / Answer

Hi,

Please find the answer as follows:

Notes:

1) Total Hours = Total Number of Units*Furnance Hours Required Per Unit

2) Contribution Margin Per Furnance Hour = Contribution Margin/Total Hours

Thanks.

Type 5 Type 10 Type 20 Revenues 39000 41000 26500 Variable Cost 25000 20500 13500 Contribution Margin 14000 20500 13000 Number of Units 5000 5000 5000 Total Hours 25000 50000 25000 Contribution Margin Per Furnance Hour 0.56 0.41 0.52

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