Managerial Accounting: E25-15 Tread Mile produces two types of exercise treadmills
Managerial Accounting E25-15 Making product mix decisions Tread Mile produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Tread Mile 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 1,040 570 Costs: Direct Material 300 90 Direct Labor 78 190 Variable Manufacturing Overhead 276 92 Fixed Manufacturing Overhead* 120 40 Variable Operating Expenses 115 67 Total Costs 889 479 Operating Income $151 $91 *allocated on the basis of machine hours
Requirements 1. What is the constraint? 2. Which model should Tread Mile produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.) 3. If Tread Mile should produce both models, compute the mix that will maximize operating income.