Capacity and product mix decision Barney Toy Company manufactures large LO 1, 2 and small stuffed animals. It has a long-term contract with a large chain of dis¬ count stores to sell 3000 large and 6000 small stuffed animals each month. The following cost information is available for large and small stuffed animals:

Production occurs in batches of 100 large or 200 small stuffed animals.
Each batch takes a total of 10 machine hours to manufacture. The total ma¬ chine hour capacity of 3000 machine hours cannot be increased for at least a year.
REQUIRED

(a) Determine the contribution margin per unit for each of the two sizes of stuffed animals.

(b) Determine which size is more profitable to produce. How many units should Barney produce of each size?

(c) Because of an unexpected high demand for stuffed dinosaurs, the discount store chain has requested an additional order of 5,000 large stuffed di¬ nosaurs. It is willing to pay $37 per dinosaur for this special order. Deter¬ mine the opportunity cost associated with this order.

(d) Should Barney Toy Company accept the order described in (c)? Explain.

(e) Suppose that the company can subcontract the production of up to 10,000 small stuffed animals to an outside supplier at a cost of $22 per animal. How many units of each size (including the special order units) should Barney produce, subcontract, and sell? What other qualitative factors should Barney consider?(LO 2, 3)

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ITEM LARGE Price per unit $32 SMALL $21 Variable costs per unit: Direct material $12 $10 Direct labor 6 2 Support 2 1 Fixed costs per unit 3 3 Total unit costs $23 $16 Estimated demand (inclusive of long-term contract) 15,000 25,000