Factoring resource constraints into product mix decisions
Rose Incorporated manufactures two types of vases, small and large. The following per-unit data are available.
Small Vase Large Vase
Sale price $60 $100
Variable costs $35 $60
Machine hours required for 1 vase 1 2
Total fixed costs are $600,000, and Rose Incorporated can sell a maximum of 25,000 units of each type of vase annually. Machine hour capacity is 50,000 hours per year.
- Determine the contribution margin per unit for each type of vase.
- Determine the contribution margin per machine hour for each type of vase.
- Determine the number of units of each style of vase that Rose Incorporated should produce to maximize operating income.
- What is the dollar amount of the maximum operating income as calculated in C above?