The senior management a CML Watercraft would like to determine if it is possible to improve the profitability by changing the existing product mix. Currently, the product mix is determined by giving resource priority to the highest contribution margin watercraft. CML Watercraft always has a contingent of 10 workers on hand; each worker is paid $25 per hour. Overhead costs are $35,000 per week. The plant operates 18 hours per day and 6 days per week. Labor is considered a fixed expense because the workers are paid for their time regardless of their utilization. The production manager has determined that workstation 1 is the bottleneck. Detailed production information is provided below.
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Model
|
|
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A
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B
|
C
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|
Price
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$450
|
$400
|
$500
|
|
Material Cost
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$50
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$40
|
$110
|
|
Weekly Demand
|
100
|
75
|
40
|
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Processing Time Station 1
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60 min
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0 min
|
30 min
|
|
Processing Time Station 2
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0 min
|
0 min
|
60 min
|
|
Processing Time Station 3
|
10 min
|
60 min
|
0 min
|
|
Processing Time Station 4
|
20 min
|
30 min
|
40 min
|
- Using the traditional method, which bases decision solely on a products contribution to profits and overhead, what is the product mix that yields the highest total profit? What is the resulting profit?
- Using the bottleneck-based method, what is the product mix that yields the highest total profit? What is the resulting profit?