Question

Pharoah Innovations, Inc. produces exercise and fitness gear. Two of its newer products require a finishing process that can only be completed on machines that were recently purchased for this purpose. The machines have a maximum capacity of 10,500 machine hours, and no other products that the company makes use these machines.

Sarah Jacob, the company’s operations manager, is preparing the production schedule for the coming month and can’t seem to find enough machine time to produce enough units to meet the customer demand that the marketing department has included in the sales budget.

Michael Stoner, the company’s controller, has gathered the following information about the two products:

		Dumbbell Rack				Weight Bench
Selling price per unit			$44				$58
Direct materials			21				14
Direct labor			4				8
Variable overhead			2				6
Fixed overhead			4				10
Profit per unit			$13				$20
Unit sales demand			5,000				8,000
Machine hours per unit			0.75				1.5

(a)

Correct answer iconYour answer is correct.

Calculate the total number of machine hours needed to produce enough units to meet the sales demand for the two products.

Total number of machine hours

enter the total number of machine hours

eTextbook and Media

  

Attempts: 1 of 3 used

  

(b)

Correct answer iconYour answer is correct.

How should Sarah allocate the 10,500 available machine hours between the two products so that Pharoah maximizes its profits?

		Machine Hours
Dumbbell Rack		enter a number of machine hours
Weight Bench		enter a number of machine hours

eTextbook and Media

  

Attempts: 1 of 3 used

  

(c)

What total contribution margin will Pharoah realize based on your answer to part (b)?

Total contribution margin

$enter the total contribution margin in dollars

Answer 1

(a) Number of machine hours needed to produce enough units to meet the sales demand for the two products
= 3,750 machine hours + 12,000 machine hours = 15,750 machine hours
Dumbell rack - 0.75 machine hours per unit x 5,000 units = 3,750 machine hours
Weight Bench - 1.5 machine hours per unit x 8,000 units = 12,000 machine hours
(b) Allocation of 10,500 available machine hours between the two products to maximise profits
= 4,500 units of Weight Bench and 5,000 units of Dumbell Rack
Working: Calculation of contribution margin per unit
Particulars	Dumbell Rack	Weight Bench
Selling price per unit	$44	$58
Less: Variable cost per unit
Direct materials	$21	$14
Direct labor	$4	$8
Variable overhead	$2	$6
Contribution margin per unit	$17	$30
Machine hours required per unit	0.75	1.50
Contribution margin per machine hour	$23	$20
First available hours should be used to produce Dumbell Rack and balance available hours for Weight Bench
Hours required for Dumbell Rack = 3,750 machine hours
Balance hours = 10,500 - 3,750 hours = 6750 machine hours
Hence, number of units of Dumbell Rack = 3,750 machine hours / 0.75 machine hours per unit = 5,000 units
Hence, number of units of Weight Bench = 6,750 machine hours / 1.5 machine hours per unit = 4,500 units
(c) Contribution margin based on part (b) answer
= (4,500 units x $30 per unit) + (5,000 units x $17 per unit)
= $220,000