Product Decisions Under Bottlenecked Operations Mill Metals Inc. has three grades of metal product, Type...
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Product Decisions Under Bottlenecked Operations Mill Metals Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows: Type 5 Type 10 Type 20 Revenues $43,000 $49,000 $56,500 Variable cost $(34,000) $(28,000) $(26,500) Fixed cost (8,000) (8,000) (8,000) Total cost $(42,000) $(36,000) $(34,500) Operating income $ 1,000 $13,000 $22,000 Number of units - 5,000 + 5,000 - 5,000 Operating income per unit $ 0.20 $ 2.60 $ 4.40 > Mill's operations require all three grades to be melted in a furnace before being formed. The furnace runs 24 hours a day, 7 days a week, and is a production bottleneck. The furnace hours required per unit of each product are as follows: Type 5: 6 hours Type 10: 6 hours Type 20: 12 hours The Marketing Department is considering a new marketing and sales campaign. Determining the unit contribution margin per furnace hour will assist in making your decision. Round the unit contribution margin to two decimal places. Type 5 Type 10 Type 20 Unit contribution margin per furnace hour Which product should be emphasized in the marketing and sales campaign in order to maximize profitability
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