Product Mix Choice: Excelsion Corporation manufactures and sells two kinds of containers—paperboard and plastic. The company produced and sold 100,000 paperboard containers and 75,000 plastic containers during the month of April. A total of 4,000 and 6,000 direct labor-hours were used in producing the paperboard and plastic containers, respectively.

The company has not been able to maintain an inventory of either product due to the high demand; this situation is expected to continue in the future. Workers can be shifted from the production of paperboard to plastic containers and vice versa, but additional labor is not available in the community. In addition, there will be a shortage of plastic material used in the manufacture of the plastic container in the coming months due to a labor strike at the facilities of a key supplier. Management has estimated there will be only enough direct material to produce 60,000 plastic containers during June.

The income statement for Excelsion Corporation for the month of April is shown below. The costs presented in the statement are representative of prior periods and are expected to continue at the same rates or levels in the future.

Required: What is the optimal product mix, given the constraints in the problem?

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EXCELSION CORPORATION Income Statement For the Month Ended April 30 Paperboard Containers Sales revenue $220,800 Plastic Containers $222,900 Less: Returns and allowances 6,360 7,200 Discounts 2,440 3,450 Total 8,800 10,650 Net sales 212,000 212,250 Cost of sales: Direct material cost 123,000 120,750 Direct labor 26,000 28,500 Indirect labor (variable with direct labor-hours) 4,000 4,500 Depreciation-machinery 14,000 12,250 Depreciation-building 10,000 10,000 Cost of sales 177,000 176,000 Gross profit 35,000 36,250 Nonmanufacturing expenses: Variable 8,000 7,500 Fixed 1,000 1,000 Commissions-variable Total operating expenses 11,000 15,750 20,000 24,250 Income before tax Income taxes (40%) 15,000 12,000 6,000 4,800. Net income $ 9,000 $ 7,200