Yoshi Company manufactures three different models of colour plasma screens: PS1, PS2, and PS3. Data on the three models is presented below: PS1 PS2 PS3 Selling Price $360 $540 $480 Unit variable cost $240 $360 $340 Annual production units 4,800 3,200 4,200 Machine-hours per unit 6 12 8 Avoidable fixed costs if product line is eliminated $46,800 $38,200 $52,500 Yoshis production capacity is 90,000 machine-hours per year. Chiyo Company has offered to purchase 4,800 units of a simpler version of PS3 for $435. Yoshi estimates that this version of the PS3 would result in variable costs of $305 per unit to manufacture and 7 machine hours per unit, plus an additional fixed cost of $62,000 for a new assembly machine. The order has to be either taken in full or rejected totally. If Yoshi takes the special order, it will not produce and sell PS3 to compete with Chiyo.

a) Given the machine hour constraint, rank the order of priority for the models to be produced. Use calculations to support your ranking.

b) Given the machine hour constraint, for which model should production be reduced and by how many units? If Yoshi can purchase additional machine hours from another plant, how much would Yoshi be willing to pay to meet its production requirement?

c) Should Yoshi accept the special order from Chiyo? What is the incremental operating income/loss for accepting this order?

Yoshi Company manufactures three different models of colour plasma screens: PS1, PS2, and PS3. Data on the three models is presented below: PS1 PS2 PS3 Selling Price Unit variable cost Annual production units Machine-hours per unit Avoidable fixed costs if $480 $340 4,200 $360 $240 4,800 $540 $360 3,200 12 8 $46,800 $38,200 $52,500 product line is eliminated Yoshi's production capacity is 90,000 machine-hours per year. Chiyo Company has offered to purchase 4,800 units of a simpler version of PS3 for $435. Yoshi estimates that this version of the PS3 would result in variable costs of $305 per unit to manufacture and 7 machine hours per unit, plus an additional fixed cost of $62,000 for a new assembly machine. The order has to be either taken in full or rejected totally. If Yoshi takes the special order, it will not produce and sell PS3 to compete with Chiyo