High Flying Copters manufactures two types of toy remote control helicopters, sm

Question

High Flying Copters manufactures two types of toy remote control helicopters, small and large. The following per unit data are available Sales price Variable costs Machine hours required per copter Small Copter $100 $55 Large Copter $150 $85 1.2 Total fixed costs are $450,000 and the company has a machine hour capacity of 30,000 hours per year Which helicopter should they emphasis in production? O A. Small O B. Large O C. Equal amount of both O D. Cannot determine from information given. Click to select your answer

Explanation / Answer

Solution 1:

As contribution per machine hour of small copter is higher than contribution per machine hour of large copter; therefore compnay should emphasis on production of small copter.

Hence option A is the right choice.

Solution 2:

As contribution per machine hour of espresso maker is higher than contribution per machine hour of food processor. Therefore in order to maximize the profit, company should produce all espresso makers with available machine hours as demand is unlimited for both products.

Number of espresso makers to be produced = 1200*3 = 3600

Number of food processor to be produced = 0

Therefore option B is the right choice.

Solution 3:

Selling price of special order = $350 per unit

Variable cost per unit = $240 + $70 = $310 per unit

Contribution per unit of special order = $350 - $310 = $40 per unit

As regular sales are not affected by special order, therefore if special order will be accepted then operating income will increase by = 7400 * $40 = $296,000

Hence option C is the right choice.

Computation of contribution per machine hour - High Flying Copters Particulars Small Copter Large Copter Sales Price $100.00 $150.00 Variable cost per unit $55.00 $85.00 Contribution per unit $45.00 $65.00 Machine hour per unit 0.50 1.20 Contribution per machine hour $90.00 $54.17

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