
TreadMile 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 | 980 | 560 | ||
Costs: | ||||
Direct materials | 300 | 90 | ||
Direct labor | 80 | 180 | ||
Variable manufacturing overhead | 252 | 84 | ||
Fixed manufacturing overhead | 108 | 36 | ||
Variable operating expenses | 113 | 69 | ||
Total cost | 853 | 459 | ||
Operating income | 127 | 101 |
Requirements
1. What is the constraint?
2. Which model should TreadMile produce? Prepare the Product mix analysis. (Hint: TreadMile can product either 1 deluxe treadmill or 3 regular treadmills per machine hour.
3. If TreadMile should produce both models, compute the mix that will maximize
operating income.
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