Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profitable mix. Sales prices, demand, and use of manufacturing inputs follow:

Basic

Classic

Formal

Sales price

$

30

$

60

$

190

Maximum annual demand (units)

25,000

15,000

35,000

Input requirement per unit

Direct material

0.4 yards

0.2 yards

0.5 yards

Direct labor

0.8 hours

2 hours

8 hours

Costs

Variable costs

Materials

$

19

per yard

Direct labor

$

15

per hour

Factory overhead

$

4

per direct labor-hour

Marketing

10

% of sales price

Annual fixed costs

Manufacturing

$

41,000

Marketing

$

10,500

Administration

$

35,000

The company faces two limits: (1) the volume of each type of shirt that it can sell (see maximum annual demand) and (2) 46,000 direct labor-hours per year caused by the plant layout.

Required:

a.

How much operating profit could the company earn if it were able to satisfy the annual demand?

b. Which of the three product lines makes the most profitable use of the constrained resource, direct labor? (Classic)

c.

Given the information in the problem so far, what product mix do you recommend?

Classic & Basic

d.

How much operating profit should your recommended product mix generate? (If needed, round your units to produce number downward to the nearest whole number.)

e.

Suppose that the company could expand its labor capacity by running an extra shift that could provide up to 12,500 more hours. The direct labor cost would increase from $15 to $18 per hour for all hours of direct labor worked during the extra shift. What additional product(s) should Austin manufacture and what additional profit would be expected with the use of the added shift?

Austin should manufacture
Additional profit would be