Storage Solutions produces plastic storage bins for household storage needs. The company makes two sizes of bins: Large (50 gallon) and Regular (35 gallon). Demand for the product used to be so high that the company could sell as many of each size as it could produce. The same machinery is used to produce both sizes. The machinery is available for only 3,000 hours per period. The company can produce 10 Large bins every hour compared to 15 Regular bins in the same amount of time. Fixed expenses amount to $110,000 per period. Product mix data follows: 2 (Click the icon to view the product mix analysis.) (Click the icon to view the operating income from the optimal product mix.) Assume that demand for Regular bins is limited to 36,000 units and demand for Large bins is limited to 25,000 units. 1. How many of each size bin should the company make now? 2. Given this product mix, what will be the company's operating income? 3. Explain why the operating income is less than it was when the company was producing its optimal product mix. 1. How many of each size bin should the company make now? This is a product mix decision. First determine which bin size Storage Solutions should emphasize. Storage Solutions should emphasize the production of size bins since they are the size bins. - X Reference Storage Solutions Product Mix Analysis Regular Large Sales price per unit $ $ 8.10 10.50 3.50 4.20 Less: Variable cost per unit Contribution margin per unit 4.60 6.30 15 10 Units per machine hour $ 69.00 $ 63.00 Contribution margin per machine hour Print Done X 1 1 Reference Storage Solutions Operating Income from Optimal Product Mix Number of bins per period 45,000 4.60 $ Contribution margin per bin Total contribution margin $ 207,000 110,000 Less: Fixed expenses $ 97,000 Operating income Print Done