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E20-15 Product mix under production constraints [15 min]

Lifemaster produces two types of exercise treadmills: regular and deluxe. The exercise
craze is such that Lifemaster could use all its available machine hours to produce either
model. The two models are processed through the same production departments.
Data for both models is as follows

Deluxe Regular
Sale price 1020 560
   Direct materials 300 90
   Direct labor 88 188
   Variable manufacturing overhead 264 88
   Fixed manufacturing overhead 138 46
   Variable operating expenses 111 65
Total cost 901 477
Operating income 119 83

1. What is the constraint?
2. Which model should Lifemaster produce? (Hint: Use the allocation of fixed manufacturing
overhead to determine the proportion of machine hours used by each product.)
3. If Lifemaster should produce both models, compute the mix that will maximize
operating income.

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