Question:
Unused Capacity: The Grape Cola Caper
Assume that all of the facts still hold except that the practical capacity of the machinery is 20,000 hours instead of 10,000 hours.
Required
a. Recompute the unit costs for each of the cola products: Diet, Regular, Cherry, and Grape.
b. What is the cost of unused capacity? What do you recommend that Rockness Bottling do with this unused capacity?
c. Now assume that Rockness is considering producing a fifth product: Vanilla cola. Because Vanilla cola is in high demand in Rockness Bottling's market, assume that it would use 10,000 hours of machine time to make 100,000 units. (Recall that the machine capacity in this case is 20,000 hours, while Diet, Regular, Cherry, and Grape consume only 10,000 hours.) Vanilla cola's per-unit costs would be identical to those of Diet cola except for the machine usage costs. What would be the cost of Vanilla cola? Calculate on a per-unit basis, and then in total.