Question :
All fixed costs per unit are evaluated based on a normal capacity usage consisting of 240 effective days. When the number of working days exceeds 240, overtime charges raise the variable manufacturing costs of additional units by $3.00 per unit in Peoria and $8.00 per unit in Moline.
Domestic Engines Co. is expected to sell and produce 192,000 power generators during the next year. Wanting to take advantage of the bigger operating income per unit at Moline, the company's production manager has decided to manufacture 96,000 units at each plant, resulting in a plan in which Moline operates at capacity (320 units per day x 300 days) and Peoria operates at its usual volume.
1. Determine the breakeven point in units for the Peoria plant and for the Moline plant.
2. Evaluate the operating income that would result from the production manager's plan to manufacture 96,000 units at each plant.
3. Evaluate how the production of 192,000 units could be allocated between the Moline and Peoria plants to maximize operating income for Domestic Engines. Show your calculations.