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 $217,000 for the company as a whole. In addition, the following information is available about the three products:

	Large		Medium		Small
Unit selling price	$150		$94		$349
Unit variable cost	118		77		307
Unit contribution margin	$ 32		$ 17		$ 42
Autoclave hours per unit	4		2		6
Total process hours per unit	12		4		18
Budgeted units of production	5,300		5,300		5,300

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

a
	Large	Medium	Small	Total
Units produced	5300	5300	5300
Revenues	795000	498200	1849700	3142900
Variable costs	625400	408100	1627100	2660600
Contribution margin	169600	90100	222600	482300
Fixed costs				217000
Income from operations				265300
b
	Large	Medium	Small
Contribution margin	32	17	42
Autoclave hours per unit	4	2	6
Unit contribution margin per production bottleneck hour	8	8.5	7