Question
Rollins Company manufactures two productsS500 and T750. The company provided the following information with respect to these products: S500 T750 Estimated customer demand (in units)
Rollins Company manufactures two productsS500 and T750. The company provided the following information with respect to these products:
| S500 | T750 | |
|---|---|---|
| Estimated customer demand (in units) | 5,600 | 4,000 |
| Selling price per unit | $ 2,400 | $ 4,200 |
| Variable expense per unit | $ 1,400 | $ 2,400 |
The company has four manufacturing departmentsFabrication, Molding, Machining, and Assemble & Pack. The capacity available in each department (in hours) and the demands that one unit of each of the companys products makes on those departments is as follows:
| S500 (hours per unit) | T750 (hours per unit) | Capacity (in hours) | |
|---|---|---|---|
| Fabrication | 1 | 2 | 4,000 |
| Molding | 2 | 2 | 6,000 |
| Machining | 2 | 0 | 5,000 |
| Assemble & Pack | 0 | 3 | 4,500 |
The company is trying to decide what product mix will maximize profits. Given that its fixed costs will not change regardless of the chosen mix, the company plans to identify the product mix that maximizes its total contribution margin.
| Area | S500 | T750 |
| Fabrication | 0 | 2000 |
| Fabrication | 500 | 1750 |
| Fabrication | 1000 | 1500 |
| Fabrication | 1500 | 1250 |
| Fabrication | 2000 | 1000 |
| Fabrication | 2500 | 750 |
| Fabrication | 2500 | 750 |
| Fabrication | 3000 | 500 |
| Fabrication | 3500 | 250 |
| Fabrication | 4000 | 0 |
| Molding | 0 | 3000 |
| Molding | 500 | 2500 |
| Molding | 1000 | 2000 |
| Molding | 1500 | 1500 |
| Molding | 2000 | 1000 |
| Molding | 2500 | 500 |
| Molding | 2500 | 500 |
| Molding | 3000 | 0 |
| Molding | 3500 | |
| Molding | 4000 | |
| Machinery | 0 | |
| Machinery | 500 | |
| Machinery | 1000 | |
| Machinery | 1500 | |
| Machinery | 2000 | |
| Machinery | 2500 | 0 |
| Machinery | 2500 | 11200 |
| Machinery | 3000 | |
| Machinery | 3500 | |
| Machinery | 4000 | |
| Assemble & Pack | 0 | 1500 |
| Assemble & Pack | 500 | 1500 |
| Assemble & Pack | 1000 | 1500 |
| Assemble & Pack | 1500 | 1500 |
| Assemble & Pack | 2000 | 1500 |
| Assemble & Pack | 2500 | 1500 |
| Assemble & Pack | 2500 | 1500 |
| Assemble & Pack | 3000 | 1500 |
| Assemble & Pack | 3500 | 1500 |
| Assemble & Pack | 4000 | 1500 |
What is T750s contribution margin per hour of the constraining resource that you identified in requirement 2a? (Hint: Calculate T750s contribution margin per unit and divide it by the hours per unit for the department you identified in requirement 2a.)1b. Assume the company focuses solely on producing T750:
- If the company decided to initiate production by maximizing the output of the product chosen in requirement 3a, then how many units of this product would it be able to make before encountering that products constraint?
- If the company implemented the production plan in requirement 3b, then how many units of its remaining product could it make with the departmental capacities that are still available?
- What total contribution margin would the company earn if it followed the production plan described in requirements 3b and 3c?
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