Lifemaster produces two types of exercise treadmills: regular and deluxe.

QUESTION

E25-15 Lifemaster
produces two types of exercise treadmills: regular and deluxe. The exercise
craze is such that Lifemaster could use all its available machine hours to
produce either model. The two models are processed through the same production
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 allocation of fixed
manufacturing overhead to determine the proportion of machine hours used by
each product.)
3. If
Lifemaster should produce both models, compute the mix that will maximize
operating income.

ANSWER:

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