Mix Up, Inc. Activity

Mix Up, Inc. manufactures three different blender models. Unit information for its products follow:

	Basic	Deluxe	Pro
Sales Price	$40	$100	$250
Direct Materials	$10	$30	$50
Direct Labor	$8	$13	$48
Variable MOH	$3	$4	$6
Fixed MOH	$3	$5	$10
Variable Selling costs	$4	$10	$25
Fixed Administrative Costs	$6	$25	$45
Required machine hours	1	2	3
Required labor hours	0.5	0.8	3
Expected Unit Demand	50,000	20,000	10,000

Case 1 Special Order

Mix Up received a special order for 1,000 units of the Deluxe blender at a selling price of $80.00 per unit. Assume capacity exists to satisfy this order. Variable selling costs will be reduced to $3.00 unit.

Required:

1. What are the relevant costs in this decision?

2. What is the effect on NOI if Mix Up accepts this special order?

3. Assume that Mix Up is operating at full capacity before satisfying the special order. What will be the effect on NOI if Mix Up accepts this special order?

4. Now assume that Mix Up has enough excess capacity to produce 700 units. What will be the effect on NOI if Mix Up accepts this special order (assume the full order is satisfied)?

5. What are some qualitative concerns Mix Up might have in this decision to accept the special order?

Case 2 Constrained Resource

Required:

1. Machine hours is the constrained resource with a maximum of 100,000 per year. Assuming infinite demand for each product, rank the products in terms of the companys preferred production. Justify your answer.

2. Now use the expected unit demand given above. Based on the priority you set in question 1, determine the number of each model Mix Up should produce to maximize its profits.

3. Suppose instead that labor hours are identified as the constrained resource with a maximum of 45,000 hours available. Assuming unlimited (infinite) demand for each product, prioritize the production of each model.

4. Now use the expected demand given above. Based on the priority you set in question 3, determine the number of each model Mix Up should produce to maximize its profits.

5. Assuming direct labor is the constraint, should Mix Up be willing to pay overtime to meet demand of all its products? Assume Mix Up is paying $16 per hour currently. Overtime is paid at time and a half. Justify your answer.

6. Again, assuming direct labor is the constraint, what is the maximum rate Mix Up would be willing to pay for direct labor for each product?