Acc350 Managerial Accounting: E25-15 Lifemaster produces two types of exercise treadmills
Acc350 Managerial Accounting E25-15 Making product mix decisions 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.