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Q8Bikes produces two types of bicycles: Deluxe (D) and Super Deluxe (SD). Demand for the...

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Question

Accounting

Q8Bikes produces two types of bicycles: Deluxe (D) and Super Deluxe (SD). Demand for the products is high for both lines. The company uses the same machinery to produce both lines. The machinery can be run for a maximum of 5000 hours per period. Q8Bikes can produce 15 D bikes per hour or 10 SD bikes per hour. Fixed costs are 55,000 KWD per period. Sales prices and variable costs are as follow:

Deluxe Super Deluxe
Sales price per unit KWD 190.000 KWD 250.000
Variable cost per unit 65.000 86.000

Requirements

  1. Which product should Q8Bikes emphasize? Why?
  2. To maximize profits, how many bikes of each line should Q8Bikes produce? Answer for each alternatives a, b, and c. Alternatives are independent.
    1. If for every D bike sold an SD bike is to be sold.
    2. If the maximum SD bikes that could be sold per period is 45,000.
    3. For maintenance purposes, only 95% of the available capacity can be used and for every SD bike sold 2 D bikes can be sold.
  3. Given your answers in (2) what will the companys operating income be for each alternative?

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