Optimal product mix. (CMA, adapted) OmniSport’s Plastics Department is currently man¬

ufacturing 5,000 pairs of skates annually, making full use of its machine capacity. Presented below are the selling price and costs associated with OmniSport’s skates.

Selling price per pair ofskates Costs per pair ofskates

$117.60 Moulded plastic $ 9.60 Other direct materials 14.40 Variable machine operating costs ($19.20 per hour) 28.80 Manufacturing overhead costs 21.60 Marketing and administrative costs 18.003 92.40 Operating income per pair ofskates $ 25.20 Note: 5,000 pairs ofskates X 1.5 hr/pair ofskates = 7,500 hours to a$l8.00 — $7.20 = $10.80 Selling and administrative costs OmniSport believes it could sell 8,000 pairs of skates annually if it had sufficient manufacturing capacity. Colcott, Inc., a steady supplier ofquality products, has agreed to pro¬
vide 6,000 pairs ofskates per year at a price of $90 per pair delivered to OmniSport’s facility.
Jack Petrone, OmniSport’s product manager, has suggested that the company can make better use ofits Plastics Department by manufacturing snowboard bindings. Petrone believes that OmniSport could expect to sell 12,000 snowboard bindings annually at a price of $72 per binding. Petrone’s estimate of the costs to manufacture the bindings is presented next.
Selling price per snowboard binding $72.00 Costs per snowboard binding Moulded plastic $19.20 Other direct materials 4.80 Variable machine operating costs ($19.24) per hour) 9.60b Manufacturing overhead costs 7.20 Marketing and administrative costs 16.80c 57.60 Operating income per snowboard binding $14.40 b12,000 snowboard bindings X 0.5 hr/snowboard binding = 6,000 hours, leaving 7,500 hr - 6,000 hr = 1,500 to complete skates at 1.5 hr/pair ofskates = 1,000 pairs ofskates completed c$16.80 — $7.20 = $9.60 Selling and administrative costs Other information pertinent to OmniSport’s operations is presented below.
An allocated $7.20 fixed overhead cost per unit is included in the marketing and adminis¬
trative cost for all the purchased and manufactured products. 1'otal fixed and variable marketing and administrative costs for the purchased skates would be $ 12 per pair.
$12.00 — $7.20 = $4.80 Selling and administrative costs In the Plastics Department, OmniSport uses machine hours as the allocation base for other manufacturing overhead costs. The fixed manufacturing overhead component of these costs for the current year is the $36,000 of fixed plantwide manufacturing overhead that has been allocated to the Plastics Department.
Instructions Form groups oftwo students to complete the following requirement.
Required Which product or products should OmniSport manufacture and/or purchase to maximize operating income? Show all calculations.