Deciding where to produce. (CMA, adapted) The PTO Division of the Galva Manufacturing Company produces the same power take-off units for the farm equipment business in two plants, a newly renovated, automated plant in Peoria, and an older, less auto¬

mated plant in Moline. The PTO Division expects to produce and sell 192,000 power take¬

off units during the coming year. The following data are available for the two plants:

' Peoria Moline Selling price Variable manufacturing cost per unit Fixed manufacturing cost per unit Sales commission (5% ofsales)

Variable marketing and distribution cost per unit Fixed marketing and distribution cost per unit Total cost per unit

$180.00

$86.40 36.00 9.00 7.80 22.80 162.00

$180.00

$105.60 18.00 9.00 7.80 17.40 157.80 Operating income per unit $ 18.00 $ 22.20 Production rate per day 400 units 320 units All unit fixed costs are calculated based on a normal year of 240 working days. When the number of working days exceeds 240, variable manufacturing costs increase by $3.60 per unit in Peoria and $9.60 per unit in Moline. Capacity for each plant is 300 working days.

Wanting to maximize the higher unit profit at Moline, PTO’s production manager has decided to manufacture 96,000 units at each plant. This production plan results in Moline operating at capacity (320 units per day X 300 days) and Peoria operating at its normal volume

(400 units per day X 240 days). Galva’s corporate controller is not happy with this plan as he does not believe it represents optimal usage of PTO’s plants.

Instructions Form pairs to complete the following requirements.

Required 1. Determine the breakeven point for the Peoria and Moline plants in units.

2. Calculate the operating income that would result from the division production manager’s plan to produce 96,000 units at each plant.

3. Determine how the production of the 192,000 units should be allocated between Peoria and Moline to maximize operating income for the PTO division. What is the maximum operating income that the PTO division can earn? $how all calculations.