Question

Product Decisions Under Bottlenecked Operations

Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $235,000 for the company as a whole. In addition, the following information is available about the three products:

	Large		Medium		Small
Unit selling price	$235		$429		$141
Unit variable cost	185		351		124
Unit contribution margin	$ 50		$ 78		$ 17
Autoclave hours per unit	4		6		2
Total process hours per unit	12		18		4
Budgeted units of production	3,600		3,600		3,600

a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production.

	Large	Medium	Small	Total
Units produced
Revenues
Variable costs
Contribution margin
Fixed costs
Income from operations

b. Prepare an analysis showing which product is the most profitable per bottleneck hour. Round the "Unit contribution margin per production bottleneck hour" amounts to the nearest cent.

	Large	Medium	Small
Contribution margin
Autoclave hours per unit
Unit contribution margin per production bottleneck hour

Answer 1

solution to part (a):

	Large	Medium	small	Total
Units produced	3600	3600	3600
Revenues (Unit selling price x Units Produced)	846,000	1,544,400	507,600	2,898,000
Less:Variable Costs (Unit variable cost*Units Produced)	666,000	1,263,600	446,400	2,376,000
Contribution Margin	180,000	280,800	61,200	522,000
Less:Fixed costs				235,000
Income from operations				287,000

solution to part (b):

	Large	Medium	small
Contribution margin (A)	$ 50	$ 78	$ 17
Autoclave hours per unit (B)	4	6	2
Unit contribution margin per production bottleneck hour [ C = A/B]	$12.5	$ 13	$ 8.5

The Medium glass product is the most profitable as it has the highest Unit contribution margin per production bottleneck hour of $ 13.