Question

Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $85,000 for the company as a whole. In addition, the following information is available about the three products:
Large Medium Small
Unit selling price $184 $160 $100
Unit variable cost 130 120 76
Unit contribution margin $54 $40 $24
Autoclave hours per unit 3 2 1
Total process hours per unit 5 4 2
Budgeted units of production 3,000 3,000 3,000

Required:
a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production.
b. Prepare an analysis showing which product is the most profitable per bottleneck hour.

Answer 1

Answer:

                                                           Large    Medium    Small

Unit selling price                                 $184      $160       $100

Unit variable cost                                  130        120          76

Unit contribution margin                     $54        $40        $24

Autoclave hours per unit                       3            2              1

Total process hours per unit                 5            4              2

Budgeted units of production           3,000     3,000    3,000

a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production.

• total contribution margin for large safety plate glasses = $54 x 3,000 = $162,000
• total contribution margin for medium safety plate glasses = $40 x 3,000 = $120,000
• total contribution margin for small safety plate glasses = $24 x 3,000 = $72,000

b. Prepare an analysis showing which product is the most profitable per bottleneck hour.

contribution margin per autoclave hour:

• large safety plate = $54 / 3 = $18 per autoclave hour
• medium safety plate = $40 / 2 = $20 per autoclave hour
• small safety plate = $24 / 1 = $24 per autoclave hour ⇒ MOST PROFITABLE PRODUCT PER AUTOCLAVE HOUR (BOTTLENECK)