Product Pricing and Profit Analysis with Bottleneck Operations

Product Pricing and Profit Analysis with Bottleneck Operations Atlas Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Atlas is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Atlas wants to improve steel operation profitability. The variable conversion cost is $16 per process hour. The fixed cost is $384,000. In addition, the cost analyst was able to determine the following information about the three products: Budgeted units produced Total process hours per unit Furnace hours per unit unit selling price Direct materials cost per unit High Grade 5,000 16 4 $387 $111 Good Grade 5,000 14 3 $340 $107 Regular Grade 5,000 11 5 $327 $96 The furnace operation is part of the total process for each of these three products. Thus, for example, 4 of the 16 hours required to process High Grade steel are associated With the furnace.