The Little People Toy Co. produces climbing and swinging apparatus for children three to eight years of age. The company has tried many different designs and through experience & testing has decided to go into the coming selling season with two designs that were particularly popular with kids and the adults who had to purchase them. These models were also popular with day cares and recreation centres.

Both models consisted of pre-cut and pre-drilled lumber as well as hardware kit specific to each design that included bolts, screws and fasteners as well as slides, ropes and swing sets. The first model, the Jungle Jerry could be produced for $175 and sold for $300. The second model, the Eagle's Nest, could be produced for $225 and sold for $400.

The company's Senior Accountant said, "We used a lot of budget for this year on design & testing , se we really have to watch what we spend on production. Th most we can spend to produce both models is $287,500 per month. It's up to sales manager to decide which models to produce and sell."

The Sales Manager said, "Let's use the full plant capacity to produce as many Jungle Jerry's & Eagle Nest's as we can. The kids are screaming for these things! We can sell all we produce. Let's get as many of these items out there as soon as possible!" The plant's capacity is 1500 units per month.

Answer the following questions.

1. Which of the two designs has the greatest percent gross profit per unit based on cost?

2. (a) Assume the company decides to produce as many Jungle Jerry's and Eagle Nest's as possible, giver the plant's capacity. How many of each model would be produced in one month if the entire $287,500 is spent on production?

(b) What gross profit would be earned when these quantities of both models are sold?

3. A business student from a local college has summer job in accounting department of The Little People Toy Co. She wondered if it would be possible to produce a different number of both models that would cost the same to produce but would generate greater gross profits. She played with a number for a while and discovered a combination of 100 Jungle Jerrys and 1200 Eagle Nests to do just that.

(a) Assume that sales manager is correct and all the jungle jerrys and eagle nests produced can be sold. What is the production cost of the combination discovered by the student?

(b) What gross profit would be earned when these quantities of both models are sold?

(c) How much more gross profit could be earned if this combination of 1300 units were produced rather than combination of 1500 units calculated in Question 2?