Question

Consider again the Windbreakers firm described in the text. Suppose that Windbreakers determines that dropping the Gale product line will release production capacity so that it can manufacture additional units of Windy. Assume that, as described in the text, the two production constraints are the automated sewing machine and the inspection and packaging operation. The automated sewing machine can make 20 Windys or 30 Gales per hour. As before, the inspection and packaging operation requires 15 minutes for a Windy (4 per hour) and 5 minutes for a Gale (12 per hour). The unit margin contribution of Windy and Gale is $8 and $4 respectively. Currently, 4,320 Gales and 18,750 Windys are being manufactured and sold. (Disregard whether this current solution is optimal.) Sales projections, determined on the basis of recent marketing analysis, show that sales of Windy could be increased to 30,000 units if additional capacity were available.

Required:

1. If Windbreakers deletes Gale entirely, how many units of Windy can it manufacture solely because of the the capacity released by discontinuing the production of Gale?

2. What is the dollar effect on operating income if Windbreakers drops the production and sale of Gale and uses the resulting released capacity--and only this released capacity--for Windy?

Answer 1