Part 3

StoreAway produces plastic storage bins for household storage needs. The company makes two sizes of bins: Large (50 gallon) and Regular (35 gallon). Demand for the product is so high that the company can sell as many of each size as it can produce. The same machinery is used to produce both sizes. The machinery is available for only 2,900 hours per period. The company can produce 9 Large bins every hour compared to 17 Regular bins in the same amount of time. Fixed expenses amount to $120,000 per period. Sales prices and variable costs are as follows: E: (Click the icon to view the costs.) 1. Which product should StoreAway emphasize? Why? 2. To maximize profits, how many of each size bin should the company produce? 3. Given this product mix, what will the company's operating income be? 1. Which product should Store Away emphasize? Why? Complete the product mix analysis to determine which product Store Away should emphasize. i Data Table StoreAway Product Mix Analysis Sales price per unit Regular $ 8.70 3.40 Large $ 10.20 4.10 Regular Large Sales price. per unit..........$ 8.70 $ 10.20 Variable cost per unit........ $ 3.40 $ 4.10 Less: Variable cost per unit Contribution margin per unit 5.30 6.10 Units per machine hour 17 X- Print Done $ 90.10 $ 54.90 Contribution margin per machine hour Decision: StoreAway should emphasize the production of Regular bins because the contribution margin per machine hour is higher. 2. To maximize profits, how many of each size bin should the company produce? (If there are zero machine hours allocated to a bin size, enter 0 in the input box.) StoreAway should spend 2,900 machine hours making Regular size bins and machine hours making Decision: StoreAway should emphasize the production of Regular bins because the contribution margin per machine hour is higher. 2. To maximize profits, how many of each size bin should the company produce? (If there are zero machine hours allocated to a bin size, enter in the input box.) 2,900 machine hours making Regular size bins and O machine hours making StoreAway should spend Large size bins. Data Table - X 3. Given the product mix determined in the previous step, calculate Store Away's operating income for the period. Number of bins per period Regular Large x $ 5.30 Contribution margin per bin Total contribution margin Sales price. per unit..........$ Variable cost per unit. ....... $ 8.70 $ 3.40 $ 10.20 4.10 Less: Fixed expenses 120,000 Operating income Print Done