Question 2: Rainy-day Printers operates a printing service with a monthly capacity of 2,000 machine hours. Rainy-day has two major product lines: Commercial printing and Literary printing. Data on each of the product lines for January follows: Commercial Total $ 120,000 42,000 78,000 60,000 $ 18,000 1,500 hours Literary $ 80,000 48,000 32,000 40,000 $ (8,000) $ 200,000 90,000 110,000 100,000 $ 10,000 2,000 hours Revenues Variable costs Contribution margin Fixed costs (allocated) Operating income Machine hours required 500 hours The Literary printing line indicates that it wants Rainy-day to do an additional $80,000 worth of printing jobs in February (in addition to its current level). These jobs are identical to the existing business completed for the Literary printing line in January in terms of the amount of variable costs and machine hours required for production. Rainy-day anticipates that the business from Commercial printing will be the same in February as it was in January. Rainy-day can choose to accept as much of the Commercial and Literary printing for February as its capacity allows. Assume that total machine hours and fixed costs for February will be the same as in January. Required: What action should Rainy-day Printers take to maximize its profitability? Show all your calculations.
Question 2: Rainy-day Printers operates a printing service with a monthly capacity of 2,000 machine hours. Rainy-day has two major product lines: Commercial printing and Literary printing. Data on each of the product lines for January follows: Commercial Total $ 120,000 42,000 78,000 60,000 $ 18,000 1,500 hours Literary $ 80,000 48,000 32,000 40,000 $ (8,000) $ 200,000 90,000 110,000 100,000 $ 10,000 2,000 hours Revenues Variable costs Contribution margin Fixed costs (allocated) Operating income Machine hours required 500 hours The Literary printing line indicates that it wants Rainy-day to do an additional $80,000 worth of printing jobs in February (in addition to its current level). These jobs are identical to the existing business completed for the Literary printing line in January in terms of the amount of variable costs and machine hours required for production. Rainy-day anticipates that the business from Commercial printing will be the same in February as it was in January. Rainy-day can choose to accept as much of the Commercial and Literary printing for February as its capacity allows. Assume that total machine hours and fixed costs for February will be the same as in January. Required: What action should Rainy-day Printers take to maximize its profitability? Show all your calculations.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 2:
Rainy-day Printers operates a printing service with a monthly capacity of 2,000 machine hours.
Rainy-day has two major product lines: Commercial printing and Literary printing. Data on
each of the product lines for January follows:
Commercial
Literary
$ 80,000
48,000
32,000
40,000
$ (8,000)
Total
$ 120,000
42,000
78,000
$ 200,000
90,000
110,000
100,000
$ 10,000
2,000 hours
Revenues
Variable costs
Contribution margin
Fixed costs (allocated)
Operating income
Machine hours required
60,000
$ 18,000
1,500 hours
500 hours
The Literary printing line indicates that it wants Rainy-day to do an additional $80,000 worth of
printing jobs in February (in addition to its current level). These jobs are identical to the existing
business completed for the Literary printing line in January in terms of the amount of variable
costs and machine hours required for production. Rainy-day anticipates that the business from
Commercial printing will be the same in February as it was in January. Rainy-day can choose
to accept as much of the Commercial and Literary printing for February as its capacity allows.
Assume that total machine hours and fixed costs for February will be the same as in January.
Required:
What action should Rainy-day Printers take to maximize its profitability? Show all your
calculations.
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