Determining Optimum Product Mix: Farside Enterprises makes and sells three types of stuffed toys. Management is trying to determine the most profitable mix. Sales prices, demand, and use of manufacturing inputs are as follows:

Not only does the company face limits on the volume of stuffed toys that it can sell, the layout of the plant is such that the company cannot have more than 30,000 direct labor-hours per year during normal shift hours.

Required: Show supporting data in good form.

a. How much operating profit could the company earn if it were able to sell all of the bears, cows, and dogs that the market would buy?

b. Which of the three product lines makes the most profitable use of the constrained resource, direct labor?

c. Given the information in the problem so far, what product mix do you recommend?

d. What amount of operating profit should your recommended product mix generate?

e. Suppose the company could expand its labor capacity by running an extra shift. The extra shift could provide up to 10,000 more hours, but the cost would increase from $8 per hour to $9.50 per hour. What additional product(s) would Farside manufacture and what additional profit would be expected with the use of the added shift?

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Sales price Annual demand Input requirements per unit: Direct material Direct labor Costs: Variable costs: Materials Direct labor Factory overhead Marketing Fixed costs: Manufacturing Marketing Bears $15 20,000 units Cows $32 10,000 units 5 yards 3 yards .7 hours 2 hours $10 per yard 8 per hour 2 per direct labor-hour 10% of sales price $18,000 per year 4,000 per year Administration 15,000 per year Dogs $95 30,000 units .6 yards 7 hours