4: GYM Inc. produces exercise and fitness equipment. The company produces two products using machine XDC. The machines have a maximum capacity of 5,000 machine hours, and no other Page 3 of 5 products that the company makes use these machines. Murad, the company's controller, has gathered the following information about the two products: Selling price/ unit Treadmill $500 Direct Materials 180 Direct labor 30 Variable overhead 10 Fixed overhead 15 Demand volume 1800 Machine hours per unit 1.5 Ellipticals $350 120 20 7 13 3600 2.5 5. After hearing about Murad's recommendation to increase the Elliptical price to $650, the sales manager, suggested that the company raise the price of the Treadmill instead. He believes that if the price is increased to $560, demand will fall to 1,400 units. How should Murad allocate the 5,000 machine hours under the sales manager's proposal? What total contribution margin will GYM earn? 6.Based on your answers to parts (3), (4), and (5), which action do you suggest that GYM take? Why? 4. Which prediction method is the best method? Why? Q4: [Total: 6 Marks) GYM Inc. produces exercise and fitness equipment. The company produces two products using machine XDC. The machines have a maximum capacity of 5,000 machine hours, and no other Page 3 of 5 products that the company makes use these machines. Murad, the company's controller, has gathered the following information about the two products: Selling price/unit Treadmill $500 Direct Materials 180 Direct labor 30 Variable overhead 10 Fixed overhead 15 Demand volume 1800 Machine hours per unit 1.5 Ellipticals $350 120 20 7 13 3600 2.5 Required: 1- Calculate the total number of machine hours needed to produce enough units to meet the sales demand for the two products. 2.How should Murad allocate the 5,000 available machine hours between the two products so that GYM maximizes its profits? 3.What total contribution margin will GYM realize based on your answer to part (2)? 4.Murad has talked with the marketing department about the situation and suggested that the company raise the sales price on the Ellipticals to $650 to reduce customer demand. The marketing department believes that at the higher price, demand for the Ellipticals will drop to 1,600 units. How should Murad allocate the 5,000 machine hours based on this new information? What total contribution margin will GYM earn? 5. After hearing about Murad's recommendation to increase the Elliptical price to $650, the sales manager, suggested that the company raise the price of the Treadmill instead. He believes that if the price is increased to $560, demand will fall to 1,400 units. How should Murad allocate the 5,000 machine hours under the sales manager's proposal? What total contribution margin will GYM earn? 6.Based on your answers to parts (3), (4), and (5), which action do you suggest that GYM take? Why? [12 Marks] Total Contribution = $690760 4. If selling price for ellipticals increases to $650 then we will produce ellipticals first since it has high contribution per hour. Particulars Sales revenue (per unit) Treadmill 500 Direct Material (per unit) 180 Ellipticals 650 120 Direct Labour cost (per unit) 30 20 I Variable overhead cost (per unit) 10 Contribution (per unit) No. of Hours per Unit Contribution per hour 280 503 1.5 2.5 186.67 201 Therefore hours allocated to will be Ellipticals 1600 2.5 = 4000 Hours and balance hours will be allocated to Treadmill = 1000 Hours Contribution No. of units Contribution p.u. Hours allocated / Hours required p.u. Contribution p.u. Contribution (per unit) 280 503 No. of Hours per Unit 1.5 2.5 Contribution per hour 186.67 201 Therefore hours allocated to will be Ellipticals 1600 * 2.5 = 4000 Hours and balance hours will be allocated to Treadmill 1000 Hours Contribution No. of units Contribution p.u. Hours allocated / Hours required p.u. Contribution P.U. Treadmill 1000/1.5 * 280 = 186666.67 Ellipticals 4000 /2.5 503 804800 = = Total Contribution = $991466.67 5. 6