Baldwin Inc. sells a wide range of drums, bins, boxes and other containers that are used in the chemical industry. One of the companys products is a heavy duty corrosion-resistant metal drum, called the Challenger drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 4,000 hours of welding time is available annually on the machine. Since each drum requires 0.4 hour of welding time, annual production is limited to 10,000 drums. At present, the welding machine is used exclusively to make the Challenger drums. The accounting department has provided the following financial data concerning the Challenger drums.

Challenger DRUMS($)
Selling price per drum		150
Variable Cost per drum:
Direct materials	52.1
Direct labor(18 per hour)	7.2
Manufacturing overheads	1.4
Selling & administrative expenses	0.8	61.5
Contribution per drum		88.5
Fixed Manufacturing overheads		100000
Fixed Selling & administrative overheads		300000

Management believes 12,000 Challenger drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Hi-Value Industries Inc., a supplier of quality products, would be able to provide up to 6,000 Challenger-type drums per year at a price of $138 per drum which Baldwin would resell to its customers at its normal selling price.

Suzzane Leister, Baldwins production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require 0.5 hour of welding time per frame and sell far more than the drums. Suzzane believes that Baldwin could sell up to 3,200 bike frames per year to bike manufacturers at a price of $240 each. The accounting department has provided the following specific data concerning the variable costs for the proposed new product:

BIKE FRAMES (in $)
Selling price per frame		240
Variable Cost per frame:
Direct materials	99
Direct labor (60 per hour)	30
Manufacturing overheads	2
Selling & administrative expenses	4	135
Contribution per frame		105

The bike frames could be produced with existing installed equipment and capacity.

Required:

1. Calculate the total profit assuming that the company sells the maximum possible drums that it can sell.
2. Calculate the total profit assuming that the company sells the maximum possible bike frames and drums that it can sell.

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