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 $85,000 for the company as a whole. In addition, the following information is available about the three products:

	Large		Medium		Small
Unit selling price	$184		$160		$100
Unit variable cost	130		120		76
Unit contribution margin	$ 54		$ 40		$ 24
Autoclave hours per unit	3		2		1
Total process hours per unit	5		4		2
Budgeted units of production	3,000		3,000		3,000

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.

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

Answer 1

• Requirement [a]

	Large	Medium	Small	Total
Units produced	3000	3000	3000
Revenues	$552,000	$480,000	$300,000	$1,332,000
Variable costs	$390,000	$360,000	$228,000	$978,000
Contribution margin	$162,000	$120,000	$72,000	$354,000
Fixed costs				$85,000
Income from operations				$269,000

• Requirement [b]

		Large	Medium	Small
A	Contribution margin	$54.00	$40.00	$24.00
B	Autoclave hours per unit	3	2	1
C = A/B	Unit contribution margin per production bottleneck hour	$18.00	$20.00	$24.00