Question

StoreAll 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 is so high that StoreAll can sell as many of each size as it can produce. The company uses the same machinery to produce both sizes. The machinery can only be run for 3,300 hours per period. StoreAll can produce 9 large bins every hour, whereas it can produce 15 regular bins in the same amount of time. Fixed costs amount to $110,000 per period. Sales prices and variable costs are as follows:
Requirements
1. Which product should StoreAll emphasize? Why?
2. To maximize profits, how many of each size bin should StoreAll produce?
3. Given this product mix, what will the company's operating income?

Answer 1

Answer:

1. Which product should StoreAll emphasize? Why?

• StoreAll should emphasize on producing regular bins since the contribution margin per hour generated by that product is much higher.

2. To maximize profits, how many of each size bin should StoreAll produce?

• Large bins = 0
• Regular bins = 49,500 units

3. Given this product mix, what will the company's operating income?

• operating income = $292,050 - $110,000 = $182,050

Explanation:

some information is missing, so I looked it up:

                                                   large bin        regular bin

sales price per unit                    $10.80               $9

variable costs per unit                $4.20               $3.10

contribution margin                    $6.60               $5.90

units per hour                                9                      15

contribution margin p/ hour      $59.40             $88.50

total contribution margin        $196,020         $292,050