Question
Playful Pens, Inc., makes a single model of a pen. The cartridge for the pen (which contains the ink) is manufactured on one machine. The
Playful Pens, Inc., makes a single model of a pen. The cartridge for the pen (which contains the ink) is manufactured on one machine. The cartridge holder (which you hold when you use the pen) is manufactured on another machine. Monthly capacities and production levels are as follows:
Machine 1 (Cartridge) | Machine 2 (Holders) | |
Monthly capacity | 1,000,000 | 800,000 |
Monthly production | 800,000 | 800,000 |
The company could sell 1,000,000 pens per month. The units (cartridge inside of holder) sell for $11.20 each and have a variable cost of $4.30 each. Fixed costs are $4,600,000 per month.
Required:
a. Is there a bottleneck at Playful Pens on Machine 1 or Machine 2?
Machine 1 | |
Machine 2 |
b. Playful Pens's production supervisors state they could increase machine 2's capacity by 200,000 per month by producing holders on the weekend. Producing on the weekend would not affect the sales price. Variable cost per unit would increase by $1.30 for those produced on the weekend because of the premium paid to labor. Fixed costs would also increase by $860,000 per month.
b-1. Calculate the differential operating profit (loss). (Losses and amounts to be deducted should be indicated with a minus sign.)
b-2. Should Playful Pens produce holders on the weekend?
Yes | |
No |
c. Independent of the situation in requirement (b), Playful Pens could expand the capability of machine 2 by adding additional workers to perform ongoing maintenance. This would increase its capacity by 100,000 holders per month. This would not affect sales price or fixed costs, but would increase variable cost to $4.86 per unit for all units produced.
c-1. Calculate the differential operating profit (loss). (Losses and amounts to be deducted should be indicated with a minus sign.)
c-2. Should Playful Pens expand Machine 2's capability by adding these additional workers?
Yes | |
No |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started