Happy Paws produces standard and premium dog food. The standard dog food is sold at...
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Happy Paws produces standard and premium dog food. The standard dog food is sold at $25 per bag, and the premium dog food is sold at $40 per bag. The variable cost of making the standard dog food is $15 per bag. It costs an extra $10 to make the premium dog food. It takes 5 labor hours to make 50 bags of standard dog food and 8 labor hours to make 50 bags of premium dog food. There are 2,000 hours of labor time available for production each week. The maximum weekly sales for the standard and premium dog food are 3,000 and 1,000 bags, respectively. Fixed production costs total $150,000 per year. All selling costs are fixed.
Required: (a) Determine the optimal production level in number of bags for each product. (b) Prepare an income statement for the company based on the optimal production level. (c) Calculate the break-even point in bags for each type of dog food.
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