Perfect Corporation manufactures four products; information regarding those products is as follows:

A B C D

Sales Price per Unit $300 $250 $350 $500

Variable Cost per Unit $170 $130 $ 210 $330

Machine Hours per Unit 5 3 4 6

Periodic Demand in Units 300 500 800 250

Answer the following:

(A) If Perfect Corporation has a monthly capacity of 5,431 machine hours per period, how many units of each product should Perfect Reb produce in order to maximize operations efficiency?

(B) Suppose Perfect Corporation paid $9,000 for equipment to increase machine hour capacity to 6,500 per period and is subject to a tax rate of 25%. What is the change in net income when compared to part “A” of this problem?

Expert Solution

(A)
Units to be produced
A = 0, B = 500, C = 800, D = 121

	A	B	C	D	Total
Sales Price per unit	$ 300.00	$ 250.00	$ 350.00	$ 500.00
Variable Cost per unit	$ 170.00	$ 130.00	$ 210.00	$ 330.00
Contribution Margin per unit	$ 130.00	$ 120.00	$ 140.00	$ 170.00
Machine hours per unit	5	3	4	6
Contribution Margin per Machine hour	$ 26.00	$ 40.00	$ 35.00	$ 28.33

Maximum Demand	300	500	800	250
Machine Hours for maximum demand	1500	1500	3200	1500	7700

Machine hours used		1500	3200	726	5426
Units to be produced		500	800	121

(B)
Contribution Margin for Present capacity = 500 x 120 + 800 x 140 + 121 x 170 = $192570
Contribution Margin for Present capacity = 60 x 130 + 500 x 120 + 800 x 140 + 250 x 170 = $222300

Increase in Operating Income = $222300 - 192570 - 9000 = $20730
Increase in Net Income = $20730 x 0.75 = $15548

	A	B	C	D	Total
Maximum Demand	300	500	800	250
Machine Hours for maximum demand	1500	1500	3200	1500	7700

Machine hours used	300	1500	3200	1500	6200
Units to be produced	60	500	800	250

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