Question
Prairie Power Corporation produces the same power generator in two Illinois plants, a new plant in Peoria and an older plant in Moline. The following
Prairie Power Corporation produces the same power generator in two Illinois plants, a new plant in Peoria and an older plant in Moline. The following data are available for the two plants: All fixed costs per unit are calculated based on a normal capacity usage consisting of 240 working days. When the number of working days exceeds 240, overtime charges raise the variable manufacturing costs of additional units by $3.00 per unit in Peoria and $8.00 per unit in Moline. Prairie Power Corporation is expected to produce and sell 192,000 power generators during the coming year. Wanting to take advantage of the higher operating income per unit at Moline, the companys production manager has decided to manufacture 96,000 units at each plant, resulting in a plan in which Moline operates at maximum capacity (320 units per day 300 days) and Peoria operates at its normal volume (400 units per day 240 days).
Peoria | Moline | ||||
Selling Price | $ 150.00 | $ 150.00 | |||
Variable manufacturing cost per unit | $ 72.00 | $ 88.00 | |||
Fixed manufacturing cost per unit | 30.00 | 15.00 | |||
Variable marketing and distribution cost per unit | 14.00 | 14.00 | |||
Fixed marketing and distribution cost per unit | 19.00 | 14.50 | |||
Total cost per unit | 135.00 | 131.50 | |||
Operating income per unit | $ 15.00 | $ 18.50 | |||
Production rate per day | 400 | units | 320 | units | |
Normal annual capacity usage | 240 | days | 240 | days | |
Maximum annual capacity | 300 | days | 300 | days | |
Overtime costs per unit | $3 | units | $8 | units | |
Units produced at each plant | 96000 | units | 96000 | units |
Calculate the operating income that would result from the production managers plan to produce 96,000 units at each plant.
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