Question: Mickey Company manufactures three different sizes of stuffed teddy bears (large, small and medium d corresponding costs for the month of January 2004 are given below:
|
large |
medium |
small |
| projected unit sales |
3,000 |
5,000 |
4,000 |
|
$ |
$ |
$ |
| price per unit |
40 |
30 |
20 |
| variable cost per unit |
|
|
|
| --direct material |
12 |
10 |
8 |
| --direct labour |
8 |
5 |
3 |
| --support costs |
5 |
3 |
2 |
| fixed cost per unit |
2 |
2 |
2 |
| total unit cost |
27 |
20 |
15 |
It takes 20, 15 and 10 machine hours to manufacture 100 units of large, medium and small teddy bears, respectively. The company has a monthly machine hour capacity of 2,050 machine hours and this machine hour capacity cannot be increased for at least a year.
Required: a) Determine the contribution margin per unit for each of the three sizes of teddy bears.
b) Determine how many units Mickey Company should produce of each size to maximise its profits
c) Suppose that a foreign firm has offered to buy 2,000 large teddy bears at $45 each. Determine the opportunity costs for this order.
d) Suppose that the available machine hour capacity is reduced to 1,550 machine hours due to machine break down. How many units of each size should Mickey Company produce to maximise its profits?