Exercise B-2 Volume Trade-Off Decision [LOB-2]

Heritage Watercraft makes reproductions of classic wooden boats. The bottleneck in the production process is fitting wooden planks to build up the curved sections of the hull. This process requires the attention of the shops most experienced craftsman. A total of 2,300 hours is available per year in this bottleneck operation. Data concerning the companys four products appear below:

	Adirondack	Lake Huron	Oysterman	Voyageur
Unit contribution margin	$1,060	$760	$512	$420
Annual demand (units)	85	85	75	130
Hours required in the bottleneck operation per unit	10	10	8	5

No fixed costs could be avoided by modifying how many units are produced of any product or even by dropping any one of the products.

Required:

1a. Calculate the total hours required in the bottleneck operation to satisfy demand for all the products.

1b. Is there sufficient capacity in the bottleneck operation to satisfy demand for all products?

	Yes
	No

2a. Rank the profitability of each product line for the year based on the profitability index.

2b. What is the optimal production plan for the year?

3. What would be the total contribution margin for the optimal production plan you have proposed?