I can\'t solve this help me StoreAway produces plastic storage bins for househol
ID: 2525858 • Letter: I
Question
I can't solve this help me
StoreAway produces plastic storage bins for household storage needs. The company makes two sizes of bins Large (50 gallon) and Regular (35 gallon) Demand for the product used to be so high that the company could sell as many of each size as it could produce. The same machinery is used to produce both sizes The machinery is available for only 2,800 hours per period. The company can produce 12 Large bins every hour compared to 16 Regular bins in the same amount of tme. Fixed expenses amount to $120,000 per period. Product mbx data follows (Click the icon to view the product mix analyis) Cick the icon to view the operating income from the optimal product mix ) Assume that demand for Regular bins is limited to 38,400 units and demand for Large bins is limited to 22,000 units 1. How many of each sze bin should the company make now? 2. Given this product mix, what will be the company's operating income? 3. Explain why the operating income is less than i was when the company was producing its optimal product mi Reference StoreAway 1. How many of each size bin should the company make now? This is a product mix decision. First determine which bin size StoreAway should emphasize StoreAway should emphasize the production of Regular size bins since they are more profitable than the Large size bins Decision StoreAway should produce Regular size bins and Large size bins 2. Given the product mix determined above, calculiate the company's operating income Product Mix Analysis Large Sales price per unit Less Variable cost per unit Contribution margin per unit Units per machine hour Contribution margin per machine hour S 8.40 S 10 20 4.40 5 80 12 S 86.40 S69.60 3.00 5.40 16 Operating Income from Product Mix Large Total 1 Reference Total contribution margin Less. Fixed expenses StoreAway Operating Income from Optimal Product Mix Number of bins per period Contribution margin per bin Total contribution margin Less Fixed expenses Operating income 44 800 5 540 5 241,920 20,000 S 121,920 Operating income 3. Explain whry the operating income is less than it was when the company was producing its optimal product mix Operating income is less than it was when StoreAway was producing its optimal product mix because O A the company had to give up some of the Regular bin contribution margin per machine hour in ordar to produce Large bins O B. the company had to produce fewer Regular size bins to match demand for these bins O C. A and B O D. None of the above Print DoneExplanation / Answer
StoreAway
Product –Mix decision
Determination of the bin size that needs to be emphasized based on the constraint –
Machine hours is the constraint as the available MH = 2,800
As per the given info, the contribution margin per machine hour is as follows,
Regular = $86.40
Large = $69.60
Since the contribution margin per machine hour is higher for Regular, the company should emphasize on producing maximum units of Regular using the available machine hours. Next, the company would produce maximum possible units of Large with the remaining machine hours.
Hence, the optimal mix is determined as follows,
Total available machine hours = 2,800
Demand for Regular bins = 38,400 units
number of units produced per hour = 16
number of hours needed to produce 38,400 units = 38,400/16 = 2,400 hours
Remaining machine hours = 400
The number of Large bins that can be produced using 400 MHs,
Number of Large bins per machine hour = 12
Hence, number of Large bins produced using 400 hours = 12 x 400 = 4,800 units
Hence the optimal product mix is –
Regular 38,400 units
Large 4,800 units
Decision: StoreAway should produce 38,400 units of Regular size bins and 4,800 units of Large size bins.
StoreAway
Operating Income from Product Mix
Regular
Large
Total
Sales in units
38,400
4,800
contribution margin per unit
$5.40
$5.80
Total contribution margin
$207,360
$27,840
$235,200
Less: fixed expenses
$120,000
Operating Income
$115,200
Note – total contribution margin = sales in units x contribution margin per unit
Operating income is less than it was when StoreAway was producing its optimal product mix because
A – the company had to give up some of the Regular bin contribution margin per machine hour in order to produce Large bins. The annual demand for Regular bins is limited to 38,400 units. So, despite earning higher contribution margin per machine hour, the company cannot produce more than 38,400 units of Regular bin. Hence, the operating income is less than it was when the company was producing the optimal product mix.
StoreAway
Operating Income from Product Mix
Regular
Large
Total
Sales in units
38,400
4,800
contribution margin per unit
$5.40
$5.80
Total contribution margin
$207,360
$27,840
$235,200
Less: fixed expenses
$120,000
Operating Income
$115,200
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