Question

ABC corp has 2 plants to produce a single product that sells for a single price: $145. Variable manufacturing costs at plant A is 72 whereas plant B is 83. Fixed manufacturing costs per unit are 32 for plant A and 19 for plant B. Variable marketing costs are 11 for plant A and 16 for plant B whereas fixed distribution costs per unit are 18 and 11 for plants A and B respectively. Total capacity for each plant is 400 units per day and 320 units per day for plants A & B respectively. The number of workdays for both plants is 240 days, but they can expand to 300 days if they use overtime, which increases variable manufacturing cost per unit by $3 at plant A, and $8 for plant B. All fixed cost per unit calculations are based on a normal capacity of 240 days.

1. In order for the firm (both plants) to produce 200,000 units and maximize profits, how many days of overtime will plant B incur?

2. What is the break even point, in units, for plant A?

3. What is the total operating income if each plant procedures 96,000 units?

4. What is the margin of safety (based on normal days at capacity), in percent, for plant A?

Answer 1