Product mix and special order decisions Orion Outdoors Company produces a standard model and a high-quality deluxe model of lightweight tents. Orion's workforce is organized into production teams responsible for cutting, stitching, and inspection activities. Orion has determined that its labor and support costs depend on the number of direct labor hours (cutting, stitching, and inspection), number of batches, and number of shipments. Production information is as fol¬ lows:

Demand for standard and deluxe models is expected to be 6000 and 3000 tents, respectively. Direct labor time available for cutting, stitching, and inspec¬ tion activities is 2000 hours. The labor cost is $12 per hour, including fringe ben¬ efits, and shipping cost is $15 per shipment. Orion produces to demand and maintains no inventory on hand.
REQUIRED

(a) Determine the production quantities for the two models that will maximize profits. Assume in this case that it is not possible to change the number of available labor hours. Suppose next that labor time available for cutting, stitching, and inspec- tion can be increased as needed. The sales manager has received an offer from Northlands Retail Company for 2000 deluxe model tents at a price of $18.50 each. This order will be produced and shipped in batch sizes of 50 tents. Inspections for this order of deluxe model batches will take 2.5 hours per batch.

(b) Should Orion Outdoors Company accept this order? What other qualitative factors should the company also consider?(LO 2, 3)

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ITEM Direct labor time (cutting and stitching) per tent Average batch size Direct labor inspection time per batch Average size per shipment Selling price per tent Materials costs per tent STANDARD MODEL DELUXE MODEL 10 min. 15 min. 60 tents 30 tents 2 hrs. 2.5 hrs. 60 tents 10 tents $10 $20 $5 $11