1. Store-it produces plastic storage bins or household storage needs. The company makes two sizes of bins; large (50 gallon) and regular (35 gallon). Demand for the product is so high that store-in can sell as many of each size as it can produce. The company uses that same machinery to produce both sizes the machinery can only be run for 3,400 hours per periods. Store-It can produce 10 large bins every hour, where s it can produce 17 regular bins in the same amount of time. fixed costs amount to $ 1,05,000 per period. Sales price and variable costs are as follows:
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Regular
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Large
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Sales price per unit
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$ 850
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$ 10.50
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Variable cost per unit
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$ 3.50
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$ 4,30
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Assume demand for regular bind is limited to 32,000 units and demand for large bins is limited to 27,000 units.
a. How many of each size bin should store-It make now?
b. Given this product mix, what will the company’s operating income be?
c. Explain why the operating income is less than it was when store-It was producing its optimal product mix