ABC Corporation makes skis in two departments: Department A makes the frame and Department B...

ABC Corporation makes skis in two departments: Department A makes

the frame and Department B adds the bindings and paints the skis. Monthly

capacities are as follows:

Department A Department B

Monthly capacity 4,000 pairs of skis 5,000 pairs of skis

The company can sell 5,000 pairs per month. A pair of skis sells for $500 and has a

variable cost of $250.

Required:

Assuming that ABC sells every pair it can produce up to 5,000, how many pairs of skis does ABC presently sell and what department is the bottleneck?

ABC production supervisors state they could increase Department A capacity by 300 pairs of skis on the weekend. Producing on the weekend would not affect the sales price or variable cost per unit, but would increase fixed costs by $80,000 per month. Should ABC produce skis on the weekend?

Independent of the situation in requirement (b), ABC could add additional equipment and workers to Department A, which will increase Department A capacity by 500 pairs per month. This would not affect the sales price but would increase variable cost per unit by $50, and would increase fixed cost by $100,000 per month. Should ABC add the additional equipment and workers to Department A?

ABC’s Department B’s managers believe capacity could be increased by 400 pairs. The cost would be $50,000. Should ABC pursue this option?

Solutions

Expert Solution

ekkarill92 answered 1 year ago

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