Exact Corporation manufactures three products at its plant. The plant capacity is limited to

95,000

machine hours per year on a single-shift basis. Direct material and direct labor costs are variable. The following data are available for planning purposes:

	TOTAL UNIT	SALES	DIRECT	DIRECT	VARIABLE	MACHINE
	DEMAND FOR	PRICE	MATERIALS	LABOR COST	OVERHEAD	HOURS
PRODUCT	NEXT YEAR	PER UNIT	COST PER UNIT	PER UNIT	COST PER UNIT	PER UNIT
XL1	270,000		$11.30			$4.40			$2.60			$2.60		0.10
XL2	270,000		15.40			4.20			3.90			3.90		0.20
XL3	270,000		14.60			5.10			3.00			3.00		0.25

Requirements

(a)	Given the capacity constraint, determine the production levels for the three products that will maximize profits.
(b)	If the company authorizes overtime in order to produce more units of XL3, the direct labor cost per unit will be higher by 50% because of the overtime premium. Materials cost and variable overhead cost per unit will be the same for overtime production as regular production. Is it worthwhile operating overtime?

Requirement (a) Given the capacity constraint, determine the production levels for the three products that will maximize profits.Begin by calculating the contribution margin per machine hour for each product. (Abbreviations used: MH = Machine hour)

XL1

XL2

XL3

Sales price per unit

Total variable cost per unit

Contribution margin per unit

MH required per unit

Contribution margin per MH

Part 2Determine the production levels for the three products that will maximize profits.

	Optimal production
	level (units)
XL1
XL2
XL3

Part 3

Requirement (b) If the company authorizes overtime in order to produce more units of XL3, the direct labor cost per unit will be higher by 50% because of the overtime premium. Materials cost and variable overhead cost per unit will be the same for overtime production as regular production. Is it worthwhile operating overtime?Begin by Begin by calculating the contribution margin per unit of XL3 under these circumstances. (Use a parentheses or a minus sign for a negative contribution margin per unit.)

XL3

Sales price per unit

Total variable cost per unit

Contribution margin per unit

Part 4

Is it worthwhile operating overtime?It is worthwhile is not worthwhile operating overtime because the unit contribution margin of XL3 using overtime is positive negative

.