Store - It produces plastic storage bins for household storage needs. The company
makes two sizes of bins: Large (50 gallon) and Regular (35 gallon). Demand for the
product used to be so high that the company could sell as many of each size as it could
produce. The same machinery is used to produce both sizes. The machinery is available
for only 2,800 hours per period. The company can produce 12 Large bins every hour
compared to 15 Regular bins in the same amount of time. Fixed expenses amount to
$115,000 per period. Product mix data follows:
(Click the icon to view the product mix analysis.) (Click the icon to view the
operating income from the optimal product mix.)
Assume that demand for Regular bins is limited to 33,000 units and demand for Large
bins is limited to 20,000 units.
1. How many of each size bin should the company make now?
2. Given this product mix, what will be the company's operating income?
3. Explain why the operating income is less than it was when the company was producing
Reference
Store-It
Product Mix Analysis
Regular
Large
Sales price per unit
$ 9.00
$ 11.40
Less: Variable cost per unit
3.40
5.60
Contribution margin per unit
5.60
5.80
Units per machine hour
15
12
X
X
Contribution margin per machine hour
$ 84.00
$ 69.60
Reference
Store-It
Operating Income from Optimal Product Mix
Number of bins per period
42,000
Contribution margin per bin
$\times$ 5.60
Total contribution margin
$ 235,200
Less: Fixed expenses
115,000
Operating income
$ 120,200
