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Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profitable mix. Sales prices, demand, and use of manufacturing inputs follow: |
| Basic | Classic | Formal | |||||||
| Sales price | $ | 31 | $ | 65 | $ | 191 | |||
| Maximum annual demand (units) | 20,100 | 10,100 | 30,100 | ||||||
| Input requirement per unit | |||||||||
| Direct material | 0.6 yards | 0.2 yards | 0.5 yards | ||||||
| Direct labor | 0.6 hours | 1.9 hours | 7.1 hours | ||||||
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| Costs | |||
| Variable costs | |||
| Materials | $ | 19 | per yard |
| Direct labor | $ | 15 | per hour |
| Factory overhead | $ | 3 | per direct labor hour |
| Marketing | 10 | % of sales price | |
| Annual fixed costs | |||
| Manufacturing | $ | 36,100 | |
| Marketing | $ | 8,010 | |
| Administration | $ | 30,100 | |
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The company faces two limits: (1) the volume of each type of shirt that it can sell (see maximum annual demand) and (2) 30,100 direct labor hours per year caused by the plant layout. |
| Requirement 1: |
| Show supporting data in good form. |
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How much operating profit could the company earn if it were able to satisfy the annual demand? (Input all amounts as positive values. Round your answers to 2 decimal places. Omit the “$” sign in your response.) |
| Total contribution margin | $ |
| Total fixed costs | |
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| Total operating profit | $ |
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| Requirement 2: |
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Which of the three product lines makes the most profitable use of the constrained resource, direct labor? |
| (Click to select)FormalsClassicsBasics |
| Requirement 3: |
| Given the information in the problem so far, what product mix do you recommend? |
| (Click to select)Basics and FormalsClassics and BasicsClassics and Formals |
| Requirement 4: |
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How much operating profit should your recommended product mix generate? (Input all amounts as positive values. Round your intermediate calculations to nearest whole number. Round your answers to 2 decimal places. Omit the “$” sign in your response.) |
| Total contribution margin | $ |
| Total fixed costs | |
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| Total operating profit | $ |
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| Requirement 5: |
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Suppose that the company could expand its labor capacity by running an extra shift that could provide up to 10,100 more hours. The direct labor cost would increase from $15 to $20 per hour for all hours of direct labor used. What additional product(s) should Austin manufacture and what additional profit would be expected with the use of the added shift? (Round your answers to 2 decimal places. Omit the “$” sign in your response.) |
| Austin should manufacture | $ (Click to select)BasicsFormalsClassics |
| Additional profit would be | $ |
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