EXERCISE 12–13 Volume Trade-Off Decision [LO3] Car Art makes miniature reproductions of classic… 1 answer below »

 

EXERCISE 12–13 Volume Trade-Off Decision [LO3]

Car Art makes miniature reproductions of classic sports cars. The bottleneck in the production process is the requirement to apply several coats of paint to each car. This process requires the attention of the shop’s most experienced craftsperson. A total of 7,200 hours is available per year in this bottleneck operation. Data concerning the company’s four products appear below:

 

 

Corvette

Porsche

Ferrari

Jaguar

Unit contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$100

$ 64

$ 70

$ 144 Annual demand (units). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Hours required in the bottleneck

operation per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

 

10 240

 

8 200

 

14 280

 

16

No fixed costs could be avoided by modifying how many units are produced of any prod- uct or even by dropping any one of the  products. Required:

1.              Is there sufficient capacity in the bottleneck operation to satisfy demand for all products?

2.              What is the optimal production plan for the year?

3.              What would be the total contribution margin for the optimal production plan you have proposed?

 

 

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