
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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please answer S8-10

Transcribed Image Text:**Product mix decision: Unlimited demand**
Storage Solutions produces plastic storage bins for household storage needs. The company makes two sizes of bins: Large (50 gallon) and Regular (35 gallon). Demand for the product is so high that the company can sell as many of each size as it can produce. The same machinery is used to produce both sizes. The machinery is available for only 3,000 hours per period. The company can produce 10 Large bins every hour compared to 15 Regular bins in the same amount of time. Fixed expenses amount to $110,000 per period. Sales prices and variable costs are as follows:
| | Regular | Large |
|--------------|---------|-------|
| Sales price per unit | $8.10 | $10.50|
| Variable cost per unit | $3.50 | $4.20 |
1. Which product should Storage Solutions emphasize? Why?
2. To maximize profits, how many of each size bin should the company produce?
3. Given this product mix, what will the company’s operating income be?
**Explanation:**
- The table provides the sales price per unit and variable cost per unit for both Regular and Large bins.
- The task involves determining which product to focus on to maximize profits, how many of each product to produce within the constraints, and calculating the operating income.

Transcribed Image Text:### Product Mix Decision: Limited Demand
#### Relevant Costs for Short-Term Decisions
**Learning Objective 5**
Consider Storage Solutions from S8-9. Assume that demand for Regular bins is limited to 36,000 units and demand for Large bins is limited to 25,000 units.
1. **How many of each size bin should the company make now?**
2. **Given this product mix, what will be the company’s operating income?**
3. **Explain why the operating income is less than it was when the company was producing its optimal product mix.**
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