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 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 Storage Solutions Product Mix Analysis Regular $ Sales price per unit Less: Variable cost per unit Contribution margin per unit 8.10 3.50 Large 10.50 4.20 4.60 6.30 Units per machine hour 15 69.00 Contribution margin per machine hour 63.00 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 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 V size bins. Decision: Storage Solutions should produce regular size bins and large size bins. 2. Given the product mix determined above, calculate the company's operating income. Storage Solutions Operating Income from Product Mix Regular Large Total Total contribution margin Less: Operating income 3. Explain why the operating income is less than it was when the company was producing its optimal product mix. Operating income is less than it was when Storage Solutions was producing its optimal product mix because: O A. the company had to produce fewer regular size bins to match demand for these bins OB. the company had to give up some of the regular bin contribution margin per machine hour in order to produce large bins O A. the company had to produce fewer regular size bins to match demand for these bins OB. the company had to give up some of the regular bin contribution margin per machine hour in order to produce large bins OC. A and B OD. None of the above
