Making product mix decisions

Lifemaster produces two types of exercise treadmills: regular and deluxe. The

exercise craze is such that Lifemaster 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 is as follows:

Per Unit

Deluxe Regular

Sale Price $ 1,020 $ 560

Costs:

Direct Material 300 90

Direct Labor 88 188

Variable Manufacturing Overhead 264 88

Fixed Manufacturing Overhead* 138 46

Variable Operating Expenses 111 65

Total Costs 901 477

Operating Income $ 119 $ 83

*allocated on the basis of machine hours

Requirements

1. What is the constraint?

2. Which model should Lifemaster produce? (Hint: Use the allocation of fixed

manufacturing overhead to determine the proportion of machine hours used by

each product.)

3. If Lifemaster should produce both models, compute the mix that will maximize

operating income.

Complete in Microsoft Excel , show work