LIMITED RESOURCE NIKE uses a special machines to produce the spikes its football
ID: 2547510 • Letter: L
Question
LIMITED RESOURCE NIKE uses a special machines to produce the spikes its football shoes NIKE has three (3) lines of football shoes Arspikes, Blasters, and Crushers. Below is information regarding each line. if NIKE only has 100,000 machine hours and 25,000 labor hours, how should NKE prioritize its football shoe lines? How many shoes of each line should NIKE produce? Total Machine Hours Available 100,000 Above each product line's name, write a 1, 2, or 3, with 1 indicating the shoe line that NKE should produce and selles rd 3 indicating NIKE's last priority AirSpikes Blasters $45 $30 ushers 575 Selling Price/Unit $30 Variable Cost/Unit Machine Hrs/Unit DL Hrs/Unit 1.5 025 0.4 0.6 35,000 9,000 10,000 Customer Demand Machine Hours To Meet Demand DL Hours to Meet Demand Units NIKE should produce (& sell)Explanation / Answer
LIMITED RESOURCE: 2 1 3 Air spikes Blasters Crushers Total Selling price per unit 55.00 45.00 75.00 Variable cost per unit 30.00 30.00 55.00 Contribution margin per unit 25.00 15.00 20.00 Machine hours per unit 3.00 1.50 4.00 CM per machine hour 8.33 10.00 5.00 DL hours per unit 0.25 0.40 0.60 CM margin per DL hour 100.00 37.50 33.33 Customer demand 10000 35000 9000 Machine hours to meet demand 30000 52500 36000 118500 DL hours to meet demand 2500 14000 5400 21900 Units NIKE should produce (& Sell) 10000 35000 4375 (100000-52500-30000)/4 NOTE: The DL hours available is 25000 and the total DL required for satisfying the demand of all the three lines is only 21900 hours. Hence, DL is not a limiting resource. The limited resource is the machine hours as the available machine hours is 100000 as against the total requirement of 118500 hours. Hence, the available machine hours should be used efficiently. For this the CM per unit of machine hour should be used as the criterium. So Blaster would be 1, Air spikes 2 and Crushers 3. KEEP OR RETAIN A SEGMENT SEGMENT MARGIN INCOME STATEMENT - EXISTING: Flash Sneakers Other Sneakers Total Sales revenue 3000000 15000000 18000000 Variable cost 1560000 7800000 9360000 Contribution margin 1440000 7200000 8640000 Direct fixed cost 1287000 2475000 3762000 (It is presumed that the common fixed cost of 6840000*45% has been assigned on the basis of sales; ie; in the ratio 3:15) (1800000-6840000*45%*3/18) (5040000-6840000*45%*15/18) Segmented margin 153000 4725000 4878000 Common fixed costs (6840000*45%) 3078000 Net operating income 1800000 SEGMENT MARGIN INCOME STATEMENT - IF FLASH IS DROPPED: SEGMENT MARGIN INCOME STATEMENT - EXISTING: Other Sneakers Sales revenue 15000000 Variable cost 7800000 Contribution margin 7200000 Direct fixed cost 2475000 (It is presumed that the common fixed cost of 6840000*45% has been assigned on the basis of sales; ie; in the ratio 3:15) (5040000-6840000*45%*15/18) Segmented margin 4725000 Common fixed costs (6840000*45%) 3078000 Net operating income 1647000 Change in NI = 1647000-1800000 = As the change in NI is negative, the Flash sneakers line need not be dropped. SELL AS IS OR PROCESS FURTHER: Incremental sales price per unit (69-49) 20 Additional cost per unit for adding pockers 16 Change in Ni per unit (increase) 4 Nike should add the Pocket.
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