=+P12-6 Product pricing and profit analysis with bottleneck operations Objs 1, 3 SPREADSHEET

•/ 1. High Grade, $125 Atlas Steel Company produces three grades ofsteel: high, good, and regular grade. Each ofthese products (grades) has high demand in the market, and Atlas is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100%

of capacity. Atlas wants to improve steel operation profitability. The variable conversion cost is

$6 per process hour. The fixed cost is $1,530,000. In addition, the cost analyst was able to determine the following information about the three products:

Budgeted units produced Total process hours per unit Furnace hours per unit Unit selling price Direct materials cost per unit High Grade Good Grade Regular Grade 6,000 6,000 6,000 15 15 12 5 3 2

$375 $350 $320

$160 $140 $130 Differential Analysis and Product Pricing 471