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Lifemaster produces two types of exercise treadmills: regularand deluxe. The
exercise craze is such that Lifemaster could use all its availablemachine hours to
produce either model. The two models are processed through the sameproduction
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 allocationof fixed
manufacturing overhead to determine the proportion of machine hoursused by
each product.)
3. If Lifemaster should produce both models, compute themix that will maximize the operating income

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Jamar Ferry
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28 Sep 2019

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Lifemaster produces 2 types of treadmills-regular anddeluxe. The exercise craze is such that L.T. could use all it'savailable machine hours to produce either model. The 2 models areproduced through the same production departments. Data for bothmodels are as follows:

Per Unit

Deluxe Regular

Sales Price

Costs

Direct Materials

Direct Labor

Variable Manufacturing Overhead

Fixed Manufacturing Overhead

Variable Operating Expenses

Total Costs

Operating Income

*Allocated on the basis of machine hours. 1. What is theconstraint? 2. Which model should they produce? (Hint:Use theallocation of fixed manufacturing overhead to determine theproportion of machine hours used by each product). CM per MHrRegular-$387 3. If they produce both models, compute the mix thatwill maximize operating income.

Treadlight produces two types of exercise treadmills: regularand deluxe. The exercise craze is such that TreadLight could useall its available machine hours to produce either model. The twomodels are processed through the same production departments. Datafor both models is as follows:

Sale Price: Deluxe per unit ($1,010), Regular per unit($560)

Costs:

Direct materials: deluxe per unit ($320), Regular per unit($90)

direct labor: deluxe per unit ($82), regular per unit ($184)

variable manufacturing overhead: deluxe per unit ($240), regularper unit ($80)

fixed manufacturing overhead *: deluxe per unit ($126), regularper unit ($42)

variable operating expenses: deluxe per unit ($117) , regularper unit ($69)

total cost: deluxe per unit ($885), regular per unit ($465)

operating income: deluxe per unit ($125), regular per unit($95)

*allocated on the basis of machine hours

a. Which model should Treadlight produce? (Hint: TreadLight canproduce either 1 deluxe treadmill or 3 regular treadmills permachine hour.)

Prepare the product mix analysis

Treadlight

Product Mix Analysis

Sales price per unit: deluxe:_______,regular:________

variable costs per unit:deluxe:______,regular:_______

contribution margin per unit: deluxe:______,regular:______

units that can be produced each machine hour: deluxe:______,regular:_______

contribution margin per machine hour: deluxe:______,regular:_______

b. Should Treadlight produce both models? If so, compute the mixthat will maximize operating income.

-----------------------------------------------------------------------------------

Members of the board of directors of Safety Step have receivedthe following operating income data for the year ended May 31,2012:

Safety Step

income statement

For the year ended May 31, 2012

Sales Revenue: Product line industrial systems ($350000),product line household systems ($360,000), total ($710,000)

cost of goods sold:

variable: product line industrial systems (34000), product linehousehold systems (47,000), total (81,000)

fixed: product line industrial systems (230,000), product linehousehold systems (69,000), total (299,000)

total cost of goods sold: product line industrial systems($264000), product line household systems(116,000), total(380000)

gross profit: product line industrial systems ($86,000), productline household systems (244,000), total (330,000)

marketing and administrative expenses:

variable: product line industrial systems (69,000), product linehousehold systems (76,000), total (145000)

fixed: product line industrial systems (41000), product linehousehold systems (24,000), total (65,000)

total marketing administrative exp.: product line industrialsystems (110,000), product line household systems (100,000),Total($210,000)

operating income (loss): product line industrial systems(-$24,000), product line household systems ($144,000), total$120,000

Members of the board are surprised that the industrial systemsproduct line is losing money. They commission a study to determinewhether the company should drop the line. Company accountantsestimate that dropping industrial systems will decrease fixed costof goods sold by $81,000 and decrease fixed marketing andadministrative expenses by $14,000.

1. prepare an incremental analysis to show whether Safety Stepshould drop the industrial systems product line. fill in theblanks.

Safety Step

incremental analysis of dropping a product line

expected decrease in revenues--

dropping industrial systems sales ________

expected decrease in expenses:

variable expenses:

cost of goods sold ________

marketing and administrative expenses _________

fixed expenses:

cost of goods sold _________

marketing and administrative expenses __________

expected decrease in total expenses __________

__________(expected decrease or expected increase) in operatingincome _____________

2. Prepare contribution margin income statements to show SafetyStep's total operating income under the two alternatives: (a) withthe industrial systems line and (b) without the line . Compare thedifference between the two alternatives' income numbers to youranswer to requirement 1.

3. What have you learned from the comparison in requirement2?

1)Treadlight produces two types of exercise treadmills: regularand deluxe. The exercise craze is such that TreadLight could useall its available machine hours to produce either model. The twomodels are processed through the same production departments. Datafor both models is as follows:

Sale Price: Deluxe per unit ($1,010), Regular per unit($560)

Costs:

Direct materials: deluxe per unit ($320), Regular per unit($90)

direct labor: deluxe per unit ($82), regular per unit ($184)

variable manufacturing overhead: deluxe per unit ($240), regularper unit ($80)

fixed manufacturing overhead *: deluxe per unit ($126), regularper unit ($42)

variable operating expenses: deluxe per unit ($117) , regularper unit ($69)

total cost: deluxe per unit ($885), regular per unit ($465)

operating income: deluxe per unit ($125), regular per unit($95)

*allocated on the basis of machine hours

a. what is the constraint?

b. Which model should Treadlight produce? (Hint: TreadLight canproduce either 1 deluxe treadmill or 3 regular treadmills permachine hour.)

c. Should Treadlight produce both models? If so, compute the mixthat will maximize operating income.

-----------------------------------------

2) Cool Systems manufactures an optical switch that it uses inits final product. The switch has the following manufacturing costsper unit:

Direct materials: $ 10.00

direct labor: $1.50

variable overhead: $1.00

fixed overhead:$6.50

manufacturing product cost:$19.00

Another company has offered to sell Cool Systems the switch for$9.50 per unit. If Cool Systems buys the switch from the outsidesupplier, the manufacturing facilities that will be idled cannot beused for any other purpose, yet none of the fixed costs areavoidable.

1. prepare an outsourcing analysis to determine if Cool Systemsshould make or buy the switch.

-----------------------------------------------

3) Naturalmaid processes organic milk into plain yogurt.Naturalmaid sells plain yogurt to hospitals, nursing homes, andrestaurants in bulk, one-gallon containers. Each batch, processedat a cost of $880, yields 900 gallons of plain yogurt. Naturalmaidsells the one-gallon tubs for $6 each, and spends $0.16 for eachplastic tub. Naturalmaid has recently begun to reconsider itsstrategy. Naturalmaid wonders if it would be more profitable tosell individual-size portions of fruited organic yogurt at localfood stores. Naturalmaid could further process each batch of plainyogurt into 19200 individual portions (3/4 cup each) of fruitedyogurt. A recent market analysis indicates that demand for theproduct exists. Naturalmaid would sell each individual portion for$0.54. Packaging would cost $0.07 per portion, and fruit would cost$0.10 per portion. Fixed costs would not change.

a)Should naturalmaid continue to sell only the gallon- sizeplain yogurt (sell as is) , or convert the plain yogurt intoindividual- size portions of fruited yogurt (process further)? why?

calculate the net benefit per batch under each alternative. (Foraccounts with a $0 balance, make sure to enter $0 in theappropriate column.)

--------------------------------------------

4) Members of the board of directors of Safety Step havereceived the following operating income data for the year ended May31,2012 :

Safety Step

income statement

For the year ended May 31, 2012

Sales Revenue: Product line industrial systems ($350000),product line household systems ($360,000), total ($710,000)

cost of goods sold:

variable: product line industrial systems (34000), product linehousehold systems (47,000), total (81,000)

fixed: product line industrial systems (230,000), product linehousehold systems (69,000), total (299,000)

total cost of goods sold: product line industrial systems($264000), product line household systems(116,000), total(380000)

gross profit: product line industrial systems ($86,000), productline household systems (244,000), total (330,000)

marketing and administrative expenses:

variable: product line industrial systems (69,000), product linehousehold systems (76,000), total (145000)

fixed: product line industrial systems (41000), product linehousehold systems (24,000), total (65,000)

total marketing administrative exp.: product line industrialsystems (110,000), product line household systems (100,000),Total($210,000)

operating income (loss): product line industrial systems(-$24,000), product line household systems ($144,000), total$120,000

Members of the board are surprised that the industrial systemsproduct line is losing money. They commission a study to determinewhether the company should drop the line. Company accountantsestimate that dropping industrial systems will decrease fixed costof goods sold by $81,000 and decrease fixed marketing andadministrative expenses by $14,000.

1. prepare an incremental analysis to show whether Safety Stepshould drop the industrial systems product line.

2. Prepare contribution margin income statements to show SafetyStep's total operating income under the two alternatives: (a) withthe industrial systems line and (b) without the line . Compare thedifference between the two alternatives' income numbers to youranswer to requirement 1.

3. What have you learned from the comparison in requirement2?

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