Incremental Decisions (Special Applications of the Cost Equation) 4. Sales Mix Steffes corporation has 3 product lines, Industrial Equipment, Home Heating Appliances, and Casework Furniture Components. Steffes has capacity to put in 210,000 direct labor hours annually, but due to the limited labor force in their region, they do not have the ability to expand. Thus, they must optimize their sales mix to optimize their profit. Currently there is enough demand to consume 100,000 direct labor hours for each product line (300,000 total). How should Steffes distribute its 210,000 hours available and what would be the contribution margin at the optimal mix? Current Sales Price and Cost information is as follows: Indust. Equip. Home Heating Casework Selling Price per unit sold $2,500.00 $1,000.00 $12.00 Direct Material Direct Labor ($20 per hour) Variable OH Other Variable SGA Costs $1,150.00 $300.00 $600.00 $50.00 $500.00 $100.00 $200.00 $25.00 $7.00 $1.00 $2.00 $ .25 5. Segment Profit Steffes Corporation reports earnings from its three divisions as shown below. The Home Heating division is shown to be unprofitable using Steffes' current method of allocating costs, the president is considering dropping the home heating division due declining sales and to liability concerns. Considering only the information below, what would be the effect on net income if home heating was dropped? What would be Steffes' new net income? Sales Variable Costs Fixed Costs Net Income Indust. Equip. Home Heating Casework 12,500,000 20,000,000 24,000,000 11,250,000 16,500,000 20,500,000 1,000,000 5,000,000 3,000,000 250,000 (1,500,000) 500,000 Total 56,500,000 48,250,000 9,000,000 (750,000) Note: 50% of fixed costs allocated to each product are common costs