Q R S T U A B C D E F G H 4 Problem C (26 points): 5 Statue Company is able to produce two products, a Fancy Statue and a Plain 6 Statue with the same machine in its factory. NOTE that only ONE Statue can be 7 manufactured at a time using this machine. The Company currently makes both 8 statues, but management is concerned that this strategy is not providing 9 maximum benefit. They are thinking of adding a second shift and have asked 10 you to figure out their best course of action. The following information is L M N O P Solution: Please place your answer and supporting calculations in the space below and either highlight your final answer or surround it with a border so that it can be easily identified by the grader. 1 Contribution Margin by Machine Hour for each Statue: 11 14 2 Units of each Statue that company should produce to maximize Contribution Margin, assuming only one production shift: 15 16 12 Statue Data: 13 Fancy Statue Plain Statue Selling price per unit $ 120.00 $ 84.00 Variable costs per unit 41.00 18.50 Contribution margin per unit $ 79.00 $ 65.50 17 Machine hours to produce ONE unit 1 hour .55 hour 18 Maximum customer demand for each 19 Statue per month (max they can sell) 380 365 20 21 The company presently operates the machine for a single eight-hour shift for 24 22 working days each month. Management is thinking about operating the 23 machine for two shifts, which will increase its productivity by another eight 24 hours per day for 24 days per month. This change would require $12,000 25 26 27 Required (NOTE--show all calculations for full credit): 28 1 Determine the contribution margin per machine hour that each product 29 generates. (4 points) 30 2 How many units of the Fancy Statue and the Plain Statue should the Problem A. Problem B. Problem C. Problem D. + 3 Total Contribution Margin resulting from solution to Item 2: 4 Units of each Statue that company should produce to maximize Contribution Margin, assuming TWO production shifts: A B C D E F G H I L M N O P Q R S T U 26 4 Units of each Statue that company should produce to maximize Contribution Margin, assuming TWO production shifts: 5 Total Contribution Margin resulting from solution to Item 4: 27 Required (NOTE--show all calculations for full credit): 28 1 Determine the contribution margin per machine hour that each product 29 generates. (4 points) BO 2 How many units of the Fancy Statue and the Plain Statue should the 31 company produce to achieve the maximum CM if it continues to operate with B2 only one shift? Assume all Statues produced are sold. (4 points) 33 3 How much total contribution margin does this sales mix produce each 34 month? (4 points) 35 4 If the company adds another shift, how many units of the Fancy Statue and 36 the Plain Statue should it produce to achieve the maximum CM? (3 points) 37 5 How much total contribution margin would this mix produce each month? 38 (3 points) 39 6 Should the company add the new shift? Why or why not? (3 points) 70 7 Suppose that, based on market research, the company determines that it can increase the Fancy Statue's maximum sales to 400 units and increase the Plain Statue's maximum sales to 500 units per month by spending $7,000 per month in marketing efforts. Should the company pursue this strategy and the 6 Should the company add the second shift? Why or why not? 71 72 15 NOTE that this problem is NOT asking you to calculate Break-Even. 16 Check Figures: Item 4: Fancy Statues = 183 Units. Item 7: Plain Statues Contribution Margin = $32,750 7 Should the company add the advertising campaign and the second shift? Why or why not? Show all relevant calculations. > Problem A. Problem B. Problem C. Problem D. +
