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Choosing the Optimal Product Mix with One Constrained Resource

Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,460 hours per year. Product Reno has a unit contribution margin of $120 and requires five hours of painting department time. Product Tahoe has a unit contribution margin of $75 and requires three hours of painting department time. There are no other constraints.

1.What is the contribution margin per hour of painting department time for each product? If required, round your answers to the nearest cent.Contribution MarginReno$Tahoe$

2.What is the optimal mix of products?Optimal MixRenounitsTahoeunits

3.What is the total contribution margin earned for the optimal mix?

Target Costing

You may use the attached spreadsheet to help you complete this activity, but you are not required to do so. You will find the spreadsheet by clicking on the link in the drop-down menu above.

H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market. The toaster will have four slots that adjust in thickness to accommodate both slim slices of bread and oversized bagels. The target price is $75. Banks requires that new products be priced such that 20 percent of the price is profit.

1.Calculate the amount of desired profit per unit of the new toaster.

2.Calculate the target cost per unit of the new toaster.


Keep or Buy, Sunk Costs

Heather Alburty purchased a previously owned, two-year-old Grand Am for $8,900. Since purchasing the car, she has spent the following amounts on parts and labor:

Unfortunately, the new stereo doesn’t completely drown out the sounds of a grinding transmission. Apparently, the Grand Am needs a considerable amount of work to make it reliable transportation. Heather estimates that the needed repairs include the following:

In a visit to a used car dealer, Heather has found a one-year-old Neon in mint condition for $9,400. Heather has advertised and found that she can sell the Grand Am for only $6,400. If she buys the Neon, she will pay cash, but she would need to sell the Grand Am.

1.Conceptual Connection: In trying to decide whether to restore the Grand Am or to buy the Neon, Heather is distressed because she already has spent $11,300 on the Grand Am. The investment seems too much to give up. How would you react to her concern?

The input in the box below will not be graded, but may be reviewed and considered by your instructor.

2.Conceptual Connection: Assuming that Heather would be equally happy with the Grand Am or the Neon, should she buy the Neon, or should she restore the Grand Am?
SelectShe should sell the Grand Am and buy the NeonShe should restore the Grand AmItem 2