Question - Making product mix decisions Tread Mile produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Tread Mile could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models are as follows:
Per Unit
Deluxe Regular
Sales Price $ 1,040 $ 570
Costs:
Direct Materials 300 90
Direct Labor 78 90
Variable Manufacturing Overhead 276 92
Fixed Manufacturing Overhead* 120 40
Variable Operating Expenses 115 67
Total Costs 889 479
Operating Income $ 151 $ 91
*allocated on the basis of machine hours
Requirements -
1. What is the constraint?
2. Which model should Tread Mile produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.)
3. If Tread Mile should produce both models, compute the mix that will maximize operating income.