Merlin Automotive Company Introduction Hard times have come upon the small Merlin Automotive Company. Financially, the performance of the factories in the past year or two have been lackluster. Making two high quality truck products, questions have arisen within the executive board on whether to keep both models, streamline (eliminate models), or add new products to the mix. Merlin's objective is to obtain maximum profit and grow the company out. Production Availability and Costs Merlin Automotive produces 2 truck models: the F-1 model and the F-2 model. The prices to dealers of the two models are $39,000 for model F-1 and $38,000 for model F-2. The company can sell as many trucks as it produces. Four departments exist within the plantmetal stamping, engine assembly, as well as Assembly line of F-1 and Assembly line of F-2. Monthly production capacity per department are expressed in manufacturing machine-hours available (net of maintenance downtime). Machinehours availability as well as machinehours required for each truck model in each department is given in the table below Hours required per Truck Machine- Hours Department F-1 model F-2 Model Metal stamping 2 2 6,000 I Engine Assembly 1 2 4,000 Model F-1 Assembly 2 NA 5,000 Model F-2 Assembly TNA 3 4,500 Merlin's production schedule for the first six months of 2014 had resulted in a monthly output of 1,000 trucks of model F-1 and 1,500 trucks of model F-2. At this level of production, F-2 assembly and engine assembly were operating at capacity. However, metal stamping and F-1 assembly were operating at only 83.3% and 40% capacity, respectively. The cost structure at this production level is as following: Standard costs of Truck Model F1 T Model F-2 I Direct materials Total Direct Materials $24,000 $20,000 Direct labor Metal stamping s800 s S600 Engine assembly $1,200 $2,400 Final assembly S2,000 $,500 Total Direct Labor $4,000 $4,500 Overhead (see Appendix for details on overhead costs) Metal stamping s3,480 $3,080 Engine assembly S2,525 $4850 I Final assembly S6,200 S3 soo Total overhead $12,205 $11,430 Total costs $40,205 $35,930