P12-6 Product pricing and profit analysis with bottleneck operations Chavez Chemical Company produces three products: ethylene, butane, and ester. E products has high demand in the market, and Chavez Chemical is able to sel can produce of all three. The reaction operation is a bottleneck in the process and nuch at l00% of capacity. Chavez Chemical wants to improve chemical operation variable conversion cost is $20 per process hour. The fixed cost is $550,000. In addl The cost analyst was able to determine the following information about the three Each of the and is running addition, he gin Ethylene Butane Ester 15.000 15,000 15,000 Budgeted units produced Total process hours per unit Reactor hours per unit Unit selling price Direct materials cost per unit 0.8 0.5 $400 $180 5350 $130 $250 $90 The reaction operation is part of the total process for each of these three products. Thus, for example, 1.0 of the 6 hours required to process ethylene is associated with the reactor. Instructions 1. Determine the unit contribution margin for each of the three products 2. Provide an analysis to determine the relative product profitabilities, assuming that the re tor is a bottleneck. 3. Assume that management wishes to improve profitability by increasing prices on sel roducts. At what price would ethylene and butane need to be offered in order to pr the same relative profitability as ester? P12-6 Product pricing and profit analysis with bottleneck operations Chavez Chemical Company produces three products: ethylene, butane, and ester. E products has high demand in the market, and Chavez Chemical is able to sel can produce of all three. The reaction operation is a bottleneck in the process and nuch at l00% of capacity. Chavez Chemical wants to improve chemical operation variable conversion cost is $20 per process hour. The fixed cost is $550,000. In addl The cost analyst was able to determine the following information about the three Each of the and is running addition, he gin Ethylene Butane Ester 15.000 15,000 15,000 Budgeted units produced Total process hours per unit Reactor hours per unit Unit selling price Direct materials cost per unit 0.8 0.5 $400 $180 5350 $130 $250 $90 The reaction operation is part of the total process for each of these three products. Thus, for example, 1.0 of the 6 hours required to process ethylene is associated with the reactor. Instructions 1. Determine the unit contribution margin for each of the three products 2. Provide an analysis to determine the relative product profitabilities, assuming that the re tor is a bottleneck. 3. Assume that management wishes to improve profitability by increasing prices on sel roducts. At what price would ethylene and butane need to be offered in order to pr the same relative profitability as ester