Slavin Corporation manufactures two products, Alpha and Delta. Each product requires time on a single machine. The machine has a monthly capacity of 500 hours. Total market demand for the two products is limited to 170 units (each) monthly. Slavin is currently producing 110 Alphas and 110 Deltas each month. Cost and machine-usage data for the two products are shown in the following table, which Slavin managers use for planning purposes. Alpha Delta Total Price $ 125 $ 155 Less variable costs per unit Material 17 32 Labor 23 35 Overhead 14 14 Contribution margin per unit $ 71 $ 74 Fixed costs Manufacturing $ 7,400 Marketing and administrative $ 4,400 $ 11,800 Machine hours per unit 2.0 2.5 Machine hours used 495 Machine hours available 500 Quantity produced 110 110 Maximum demand 170 170 Profit $ 4,150 Required: a. What is the optimal production schedule for Slavin? In other words, how many Alphas and Deltas should the company produce each month to maximize monthly profit? b. If Slavin produces at the level found in requirement (a), how much will monthly profit increase over the current production schedule?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 16E

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Slavin Corporation manufactures two products, Alpha and Delta. Each product requires time on a single machine. The machine has a monthly capacity of 500 hours. Total market demand for the two products is limited to 170 units (each) monthly. Slavin is currently producing 110 Alphas and 110 Deltas each month. Cost and machine-usage data for the two products are shown in the following table, which Slavin managers use for planning purposes.

	Alpha	Delta	Total
Price	$	125		$	155
Less variable costs per unit
Material		17			32
Labor		23			35
Overhead		14			14
Contribution margin per unit	$	71		$	74
Fixed costs
Manufacturing						$	7,400
Marketing and administrative						$	4,400
						$	11,800
Machine hours per unit		2.0			2.5
Machine hours used							495
Machine hours available							500
Quantity produced		110			110
Maximum demand		170			170
Profit	$	4,150

Required:

a. What is the optimal production schedule for Slavin? In other words, how many Alphas and Deltas should the company produce each month to maximize monthly profit?

b. If Slavin produces at the level found in requirement (a), how much will monthly profit increase over the current production schedule?

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