Factoring resource constraints into product mix decisions
Rose Incorporated manufactures two types of vases, small and large. The following per-unit data are available.
Small Vase Large Vase
Sale price $60 $100
Variable costs $35 $60
Machine hours required for 1 vase 1 2
Total fixed costs are $600,000, and Rose Incorporated can sell a maximum of 25,000 units of each type of vase annually. Machine hour capacity is 50,000 hours per year.
a. Determine the contribution margin per unit for each type of vase.
b. Determine the contribution margin per machine hour for each type of vase.
c. Determine the number of units of each style of vase that Rose Incorporated should produce to maximize operating income.
d. What is the dollar amount of the maximum operating income as calculated in C above?