Product Decisions Under Bottlenecked Operations Mill Metals Inc. has three grade

Question

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:

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:

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 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

Explanation / Answer

Product Decisions Under Bottlenecked Operations Mill Metals Inc. has three grade

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