Question
F Co makes and sells two products, A and B, each of which passes through the same automated production operations. The following estimated information is
F Co makes and sells two products, A and B, each of which passes through the same automated production operations. The following estimated information is available for period 1.
Production unit data
A | B | |
direct material cost ($) | 2 | 40 |
Variable production overhead cost ($) | 28 | 4 |
Original estimates of production/sales of products A and B are 120,000 units and 45,000 units respectively. The selling prices per unit for A and B are $60 and $70 respectively.
Maximum demand for each product is 20% above the estimated sales levels.
Total fixed production overhead cost is $1,470,000. This is absorbed by products A and B at an average rate per hour based on the estimated production levels.
One of the production operations has a maximum capacity of 3,075 hours which has been identified as a bottleneck, limiting the overall estimated production/sales of products A and B. The bottleneck hours required per product unit for products A and B are 0.02 and 0.015 respectively.
Required:
A. Using limiting factor analysis, calculate the contribution per bottleneck hour of Product B to the nearest dollar.
B. If F Co chooses to prioritize Product B, calculate the value (in $) of the maximum net profit.
C. Using throughput analysis, calculate the return per bottleneck hour of Product A.
D. If F Co choose to prioritize the manufacture of Product A, calculate the value (in $) of the maximum net profit using throughput analysis.
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