Problem - Product Decisions under Bottlenecked Operations

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Problem - Product Decisions under Bottlenecked Operations

Eagle Alloys Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows:

 

Type 5

Type 10

Type 20

Revenues

$39,000

$41,000

$26,500

Variable cost

$25,000

$20,500

$13,500

Fixed cost

8,000

8,000

8,000

Total cost

$33,000

$28,500

$21,500

Income from operations

$ 6,000

$12,500

$ 5,000

Number of units

÷ 5,000

÷ 5,000

÷ 5,000

Income from operations per unit

$ 1.20

$ 1.20

$ 1.00

Eagle's operations require all three grades to be melted in a furnace before being formed. The furnace runs 24 hours a day, 7 days a week, and is a production bottleneck. The furnace hours required per unit of each product are as follows:

Type 5: 5 hours

Type 10: 10 hours

Type 20: 5 hours

The Marketing Department is considering a new marketing and sales campaign.

Required - Which product should be emphasized in the marketing and sales campaign in order to maximize profitability?

 

Reference no: EM132687496

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