T&G Co. manufactures three types of computer desks. The income statement for the three products and the whole company is shown below:

The company produces 1,000 units of each product. The company's capacity is 17,000 machine hours. The machine hours for each product are seven hours for Product A, five hours for Product B, and five hours for Product C. Fixed costs are allocated based on machine hours.
Instructions
Answer the following questions:
(a) If the current production levels are maintained, should the company eliminate Product C? Explain your reasoning.
(b) If the company can sell unlimited quantities of any of the three products, which product should be produced?
(c) Suppose the company can sell unlimited quantities of any of the three products. If a customer wanted to purchase 500 units of Product C, what would the minimum sale price per unit be for this order?
(d) The company has a contract that requires it to supply 500 units of each product to a customer. The total market demand for a single product is limited to 1,500 units. How many units of each product should the company manufacture to maximize its total contribution margin including the contract?

Transcribed Image Text:

Product A $75,000 40,000 28,000 68,000 7,000 Product B S95,000 60,000 20,000 80,000 $15,000 Total $275,000 190,000 68,000 258,000 Product C $105,000 Sales Variable costs Fixed costs Total costs Operating income 90,000 20,000 110,000 (5,000)$ 17,000