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E25-15 Lifemaster produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Lifemaster could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models is as follows:
Per Unit |
|||
Deluxe |
Regular |
||
Sale Price |
1,020 |
560 |
|
Costs: |
|||
Direct Material |
300 |
90 |
|
Direct Labor |
88 |
188 |
|
Variable Manufacturing Overhead |
264 |
88 |
|
Fixed Manufacturing Overhead* |
138 |
46 |
|
Variable Operating Expenses |
111 |
65 |
|
Total Costs |
901 |
477 |
|
Operating Income |
$119 |
$83 |
*allocated on the basis of machine hours
Requirements
1. What is the constraint?
2. Which model should Lifemaster produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.)
3. If Lifemaster should produce both models, compute the mix that will maximize operating income.
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