Problem - Perton Manufacturing produces three products: A, B, and C. Production information for the past two years is below:
|
Product A
|
Product B
|
Product C
|
Total
|
|
2012
|
|
|
|
|
|
Units sold
|
40,000
|
40,000
|
50,000
|
130,000
|
|
Sales
|
7,200,000
|
9,600,000
|
20,000,000
|
36,800,000
|
|
Cost of Goods Sold
|
3,000,000
|
1,800,000
|
15,000,000
|
19,800,000
|
|
Gross Profit
|
4,200,000
|
7,800,000
|
5,000,000
|
17,000,000
|
|
Selling & Other Exp.
|
2,000,000
|
3,600,000
|
3,000,000
|
8,600,000
|
|
Net Income b4 Tax
|
2,200,000
|
4,200,000
|
2,000,000
|
8,400,000
|
|
|
|
|
|
|
Labor Hours Used
|
160,000
|
120,000
|
100,000
|
380,000
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
Units sold
|
50,000
|
60,000
|
60,000
|
170,000
|
|
Sales
|
9,000,000
|
14,400,000
|
24,000,000
|
47,400,000
|
|
Cost of Goods Sold
|
3,750,000
|
2,700,000
|
18,000,000
|
24,450,000
|
|
Gross Profit
|
5,250,000
|
11,700,000
|
6,000,000
|
22,950,000
|
|
Selling & Other Exp.
|
2,250,000
|
3,900,000
|
3,200,000
|
9,350,000
|
|
Net Income b4 Tax
|
3,000,000
|
7,800,000
|
2,800,000
|
13,600,000
|
|
|
|
|
|
|
Labor Hours Used
|
200,000
|
180,000
|
120,000
|
500,000
|
Their union contract limits the regular hours to be worked by each of Perton's 250 current employees to 40 hours per week for 50 weeks with 2 weeks of vacation. Overtime work must pay time-and-a-half, or $15/hr. and is limited to 20% of base hours per employee. As the above numbers show, the demand for Perton's products has increased and in 2013 their employees worked the maximum number of hours to avoid overtime but still left unfilled demand even though their plant has a total capacity of 240,000 combined units. Perton estimates that actual demand is:
|
Product
|
Demand
|
|
A
|
110,000 units
|
|
B
|
60,000 units
|
|
C
|
80,000 units
|
1. What is Perton's breakeven point in total units (of all products) if their sales mix remains constant?
2. If overtime is not allowed, how can Perton adjust their sales mix to best utilize their existing workers?
3. How would making this change affect their pre-tax profits?
4. Should Perton allow employees to work overtime? Why or why not?