Epsilon produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Epsilon could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models are as follows:

Per Unit

Deluxe Regular

Sales price	$ 1,050	$ 530
Costs:
Direct materials	320	90
Direct labor	88	178
variable manufacturing overhead	234	78
fixed manufacturing overhead	144	48
variable operating expenses	121	71
Total cost	907	465
operating income	143	65
**allocated on the basis of machine hours

Requirement 1. What is the constraint?

Epsilon's constraint is _______a______.

Requirement 2. Which model should Epsilon produce?

Epsilon should produce the product with the ___________b_______________ .

Now prepare the product mix analysis by starting with the contribution margin per unit.

Deluxe treadmill Regular treadmill

sales price per unit __________________ _______________

variable costs per unit ___________________ _______________

contribution margin per unit ___________________ _______________

Next, calculate the proportion of machine hours used.

Fixed overhead / Total overhead = Proportion of machine hours used

Deluxe treadmill ______________ / _____________ = _____________________

Regular treadmill _______________ / _____________ = _____________________

Finally, calculate the contribution margin per machine hour.

Deluxe treadmill Regular treadmill

Units that can be produced

each machine hour _______________ _____________

Contribution margin

per machine hour ________________ ______________

Requirement 3. If Epsilon should produce both models, compute the mix that will maximize operating income.

Epsilon should produce _________________c________________ because ____________d______________ .

a. direct materials or labor hours or machine hours

b. highest contribution margin per unit or highest contribution margin per unit of the constraint or highest sales price or lowest cost or lowest sales price.

c. half standard models and half deluxe models or only the deluxe model or only the regular model.

d. each model contributes an equal amount to operating income for the period or this model produces the highest contribution margin per unit or this model produces the most contribution margin per machine hour.

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