157 % a Learning Objective 3 - 1 x 507 of 778 E25-15 Making product mix decisions Tread Mile produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Tread Mile could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models are as follows: 2. CM per MHr, Regular $393 Per Unit Deluxe Regular $ 1,040 $570 Sales Price Costs: Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Variable Operating Expenses Total Costs Operating Income *allocated on the basis of machine hours CHAPTER 25 Requirements 1. What is the constraint? 2. Which model should Tread Mile produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.) 3. If Tread Mile should produce both models, compute the mix that will maximize operating income. E F G Requirement 1: deluxe 1040 regular 570 300 90 190 sales price COSTS direct materials dir labor var manov fixed manov var oper costs Tota costs oper income 276 Requirement 2: Contribution margin per treadmill 92 120 115 Deluxe Treadmill Regular Treadmill 1.040 570 769 439 $ 271 S 131 67 479 Sales price per treadmill Variable cost per treadmill Contribution margin per treadmill 151 Proportion of machine hours used: Deluxe Treadmill 75% Regular Treadmill 25% Contribution margin per machine hour: Deluxe Treadmill Regular Treadmill (1) Proportion of units produced per equivalent hour (2) Contribution margin per treadmill (calculated above) Contribution margin per equivalent machine hour (1)x(2) Requirement 3: Module 5 E25-10 E25-13 E25-15 E25-18 CP25-33 + Ready - - + 100%