Question

austin enterprises makes and sells three types of dress shirts

D. 1

D. 2

E.

Saved Help Save Problem 4-71 (Algo) Optimum Product Mix (LO 4-4) Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profitable mix. Sales prices demand, and use of manufacturing inputs follow. $ Basic 36 24,000 $ Classic 70 14,000 $ Formal 180 34,000 Sales price Maximum annual demand (units) Input requirement per unit Direct material Direct labor 0.9 yards 0.7 hours 0.3 yards 2 hours 0.6 yards 8 hours $ $ Costs Variable costs Materials Direct labor Factory overhead Marketing Annual fixed costs Manufacturing Marketing Administration 18 per yard 14 per hour 3 per direct labor-hour 10 # of sales price $40,000 $10,000 $34,000 The company faces two limits: (1) the volume of each type of shirt that it can sell (see maximum annual demand) and (2) 38,500 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 < Prey 6 of 6 !!! Next >

Answer 1

	Basic	Classic	Formal
Sales price	36	70	180
Less: variable costs
Direct material cost per unit	16.2	5.4	10.8
Direct labor cost	9.8	28	112
Variable overhead	2.1	6	24
Variable marketing	3.60	7.00	18.00
Total variable costs	31.7	46.4	164.8
Contribution margin	4.30	23.60	15.20
Direct labor hour required	0.7	2	8
Contribution margin direct labor hour	6.143	11.800	1.900

18*0.9 = 16.2

18*0.3 =5.4

18*0.6 =10.8

14*0.7 =9.8

14*2 = 28

14*8 = 112

3*0.7 = 2.1

3*2 = 6

3*8 = 24

Part D1

	Basic (15000)	Classic (28000)
Total revenue	540000	1960000
Less: variable manufacturing costs:
Direct materials	243000	151200
Direct labor	147000	784000
Variable overhead	31500	168000
Variable marketing	54000	196000
Total costs	475500	1299200
Contribution margin	64500	660800

14000* 2 = 28000

38500-28000 = 10500

10500/0.7 = 15000

Part D 2

Operating profit

$641300

Operating profit = contribution margin – fixed costs = (64500+660800)-(40000+10000+34000) = $641300

Part E

Austin should manufacture	6200 basics
Additional profit would be	$9300