Reference no: EM135607

Q:

(CMA, adapted) The Domestic Engines Co. produces the similar power generators in two Illinois plants, a new plant in Peoria and an older plant in Moline. The subsequent data are available for the two plants:

A B C D E

1 Poeria Moline

2 selling Price 150 150

3 Variable Manufacturing cost per unit 72 88

4 fixed manufacturing cost per unit 30 15

5 variable marketing and distribution cost per unit 14 14

6 fixed marketing and distribution cost per unit 19 19

7 total cost per unit 135 131

8 operating income per unit 15 18.50

9 production rate per day 400 units 320 units

10 normal annual capacity usage 240 days 240 days

11 maximum annual capacity 300 days 300 days

All fixed costs per unit are evaluated based on a normal capacity usage consisting of 240 working days. When the number of working days goes over 240, overtime charges raise the variable manufacturing costs of additional units by $3.00 per unit in Peoria and $8.00 per unit in Moline.

Domestic Engines Co. is predictable to produce and sell 192,000 power generators in the coming year. Wanting to take advantage of the higher operating income per unit at Moline, the company's production manager has determined to manufacture 96,000 units at each plant, resulting in a plan in which Moline performs at capacity (320 units per day x 300 days) and Peoria operates at its normal volume (400 units per day x 240 days).

1. Determine the breakeven point in units for the Peoria plant and for the Moline plant.

2. Evaluate the operating income that would result from the production manager's plan to manufacture 96,000 units at each plant.

3. Evaluate how the production of 192,000 units should be allocated between the Moline and Peoria plants to maximize operating income for Domestic Engines.