Case: Utilization of a Constrained Resource Tutstuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD 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 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding machine time, annual production is limited to 5.000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums: WVD Drums Selling price per drum $140.00 Cost per drum: Direct materials (Variable) $52.10 Direct labor (Variable) 3.60 Variable Manufacturing overhead 1.35 Fixed Manufacturing overhead 3.15 Variable Selling and administrative expense 0.75 Fixed Selling and administrative expense 29.05 90.00 Margin per drum $ 59.00 Management believes 6,000 WVD 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. Hapgor Industries, Inc., a supplier of quality products, would be able to provide up to 4,000 WVD-type drums per year at a price of $138 per drum. which Tutstuff would resell to its customers at its normal selling price after appropriate relabeling. It has been estimated that variable selling and administrative expenses amount to $0.75 per WVD drum whether it was made or purchased. Megan Flores, Tutstuffs production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.5 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that Jutstuff could sell up to 1.600 bike frames per year to bike manufacturers at a price of $239 each. The accounting department has provided the following data concerning the proposed new product Bike Frames Selling price per drum $239.00 Cost per frame: Direct materials (Variable) $99.40 Direct labor (Variable) 28.80 Variable Manufacturing overhead 1.90 Fixed Manufacturing overhead 34.10 Variable Selling and administrative expense 1.30 Fixed Selling and administrative expense 46.50 212.00 Margin per drum $ 27.00 The bike frames could be produced with existing equipment and personnel. As indicated earlier, the company has a welding machine that can give only 2,000 hours of welding time. Therefore, it is a constrained resource. Assume that the cost of using welding machine is fixed with respect to welding time. You want to make decisions in such a way to maximize the company's profit.