29. Constrained Resources. Cycle, Inc, produces three types of bicycles: racer, cruiser, and climber. The bikes are produced in separate departments and sent to the quality testing department before being packaged and shipped. A laborhour bottleneck has been identied in the quality testing department due to the high skill requirements of the job. Cycle, Inc., would like to optimize its use of labor hours by producing the two most protable bikes. Information for each bike follows. Quality Testing Labor Hours Price lil'aI-iatlio Cost Racer 1.25 $1,000 $400 Cruiser 1.00 500 300 Climber 1.00 800 450 Required: 1. Calculate the contribution margin per unit of constrained resource for each product. 2. Which two products would Cycle, Inc, prefer to produce and sell to optimize the use of labor hours in the quality testing department? 30. Qualitative Factors. For each of the following independent scenarios, identify at least one qualitative factor that should be considered before making the decision. 1. A company sells three types of computers (laptops, desktops, and palmtops)I all of which are protable. The company ces a machine-hour bottleneck and plans to eliminate the palmtop product because It has the lowest contribution margin per machine hour. 2. A company plans to drop an unprotable customer. 3. A maker of high-end stereo equipment would like to shut down its manufacturing facility and mltsource produchon. production of the doors to a reputable manufacturing company that can supply the doors for $90 per unit. Vail incurs the following annual production costs to produce 3,000 doors intemaliy. Total Annual Cost at Per Unit 3,000 Units Variable production costs Direct materials $30 $ 90,000 Direct labor 15 45,000 Manufacturing overhead 20 60,000 Fixed production costs Factory lease 80,000 Equipment lease 40,000 Factory insurance 25,000 Production supervisor's salary 90,000 Total production costs $430,000 If production is outsourced, all variable production costs, equipment lease costs, and factory insurance costs will be eliminated. The production supervisor's salary cost will remain regardless of the decision to outsource or to produce internally because the supervisor recently signed a long-term contract with the company. The factory lease has five years remaining and cannot be terminated before then. Required: 1. Perform differential analysis using the format presented in Figure 4.2 "Make-or-Buy Differential Analysis for Best Boards, Inc.". Assume making the product internally is Alternative 1, and buying the product from an outside manufacturer is Alternative 2. 2. Which alternative is best? Explain. 3. Summarize the result of outsourcing production using the format presented in Figure 4.3 "Summary of Differential Analysis for Best Boards, Inc.". 4. Assume Vail Door Company can lease the space it currently uses to produce doors for $30,000 per year if production of doors is outsourced. Because the company subleasing this space would also pay for insurance, Vail would not be required to pay for factory insurance. Use the format presented in Figure 4.3 "Summary of Differential Analysis for Best Boards, Inc." to determine if Vail would be better off outsourcing production. (Hint: $30,000 will appear in the