Operating Profit Assignment | Top Universities

Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profitable mix. Sales price demand and use of manufacturing inputs follow. Basic $ Classic 77 9,000 $ Formal 190 26,000 16,000 Sales price Maximum annual demand (units) Input requirement per unit Direct material Direct labor 0.5 yards 0.8 hours 0.3 yards 3 hours 0 .6 yards 9 hours Costs Variable costs Materials Direct labor Factory overhead Marketing Annual fixed costs Manufacturing Marketing Administration 16 per yard 12 per hour 3 per direct labor-hour 10 % of sales price $48,000 $14,000 $42.000
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The company faces two limits: (1) the volume of each type of shirt that it can sell (see maximum annual demand) and (2) 30,500 direct labor-hours per year caused by the plant layout. Required: a-1. Assuming the company can satisfy the annual demand, calculate the contribution margin for each type of dress shirt using the table below 0-2. How much operating profit could the company earn if it were able to satisfy the annual demand? b-1. Compute the contribution margin for each shirt per the constrained resource, direct labor. b-2. Which of the three product lines makes the most profitable use of the constrained resource, direct labor? c. Given the information in the problem so far, what product mix do you recommend? d-1. Calculate the contribution margin for each type of dress shirt using the table below. d-2. How much operating profit should your recommended product mix generate? e. Suppose that the company could expand its labor capacity by running an extra shift that could provide up to 16.000 more hours. The direct labor cost would increase from $12 to $16 per hour for all hours of direct labor used during the additional shift. What additional product(s) should Austin manufacture and what additional profit would be expected with the use of the added shift? Get Accounting Homework Help Today

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