Reference no: EM132638493

Fixed costs per unit are calculated based on a normal capacity usage consisting of 240 working days. This includes all fixed costs. Overtime charges increases the manufacturing variable costs when the number of working days exceeds 240. This increase is by $9.00 per unit in the Port Macquarie Plant and $24.00 per unit in the Coffs Harbour Plant. The Manager of Maharjan, Mr Raj Maharjan wants the production and sales increased in 2018. He has asked Mr Greg Mumford, the management accountant to work out the ideal number of generators to be manufactured to maximise production in 2018. Mr Mumford wants to take advantage of the higher operating income at the Coffs Harbour plant. He decides manufacturing of 96,000 units at each plant resulting in a plan in which Coffs Harbour would operate at a maximum capacity (320 units per day x 300 days) and Port Macquarie operates at its normal volume (400 units per day x 240 days). Assume you are Mr Mumford, and prepare a report to the Manager to advise the results of your analysis in taking advantage of the higher operating income at the Coffs Harbour plant.

Your report should include the following:

Question 1. Show how you calculated the contribution margin per unit under normal production and under overtime production.

Question 2. Show how you identified the break-even point for both the plants.

Question 3. Show how you determined the operating income, if 96,000 generators are manufactured at each plant. Show, how the production of 192,000 generators should be allocated between the two plants to maximise the operating income for Maharjan Manufacturing Pty Ltd.