Newbury Printers operates a printing press with a monthly capacity of 3,200 machine-hours. Newbury has two main customers: Wallace Corporation and Kimberly Corporation. Data on each customer for January are:

Kimberly Corporation indicates that it wants Newbury to do an additional $160,000 worth of printing jobs during February. These jobs are identical to the existing business Newbury did for Kimberly in January in terms of variable costs and machine-hours required. Newbury anticipates that the business from Wallace Corporation in February will be the same as that in January. Newbury can choose to accept as much of the Wallace and Kimberly business for February as its capacity allows. Assume that total machine-hours and fixed costs for February will be the same as in January.
Required
What action should Newbury take to maximize its operating income? Show your calculations. What other factors should Newbury consider before making a decision?

Transcribed Image Text:

Wallace Corporation Kimberly Corporation Total Revenues Variable costs Contribution margin Fixed costs (allocated) Operating income Machine-hours required $240,000 129,600 110,400 75,000 $ 35,400 2,400 hours $160,000 112,000 48,000 50,000 /2,000 $400,000 241,600 158,400 125,000 S 33,400 800 hours 3,200 hours