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 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 $114,000 for the company as a whole. In addition, the following information is available about the three products:

	Large		Medium		Small
Unit selling price	$226		$149		$382
Unit variable cost	178		122		336
Unit contribution margin	$ 48		$ 27		$ 46
Autoclave hours per unit	6		2		4
Total process hours per unit	18		4		8
Budgeted units of production	2,100		2,100		2,100

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	$	$	$	$
Less: Variable costs
Contribution margin	$	$	$	$
Less: 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
Unit contribution margin	$	$	$
Autoclave hours per unit
Unit contribution margin per production bottleneck hour	$	$	$

Answer 1

Ans.1		Large	Medium	Small	Total
	Units produced	2100	2100	2100
	Revenues	474600	312900	802200	1589700
	Less: Variable costs	373800	256200	705600	1335600
	Contribution margin	100800	56700	96600	254100
	Less: Fixed costs				114000
	Income from operations				140100
	Revenues =   Unit selling price * Budgeted units produced
	Variable costs = Unit variable cost * Budgeted units produced
Ans.2		Large	Medium	Small
	Unit contribution margin	48	27	46
	Autoclave hours per unit	6	2	4
	Unit contribution margin per production	8	13.5	11.5
	bottleneck hour
	*Unit contribution margin = Unit selling price - unit variable costs
	Unit contribution margin per production bottleneck hour = Unit contribution margin / Autoclave hours per unit