Question

Heritage Watercraft makes reproductions of classic wooden boats. The bottleneck in the production process is fitting wooden planks to build up the curved sections of the hull. This process requires the attention of the shop’s most experienced craftsman. A total of 3,600 hours is available per year in this bottleneck operation. Data concerning the company’s four products appear below: Adirondack Lake Huron Oysterman Voyageur Unit contribution margin $1,190 $1,068 $616 $970 Annual demand (units) 100 100 90 140 Hours required in the bottleneck operation per unit 10 12 8 10 No fixed costs could be avoided by modifying how many units are produced of any product or even by dropping any one of the products. Required: 1a. Calculate the total hours required in the bottleneck operation to satisfy demand for all the products.

2a. Rank the profitability of each product line for the year based on the profitability index.

2b. What is the optimal production plan for the year?

3. What would be the total contribution margin for the optimal production plan you have proposed?

Answer 1

Answer:

Solution 1a:

Computation of total hours required in the bottleneck opertion
Particulars	Adirondack	Lake Huron	Oysterman	Voyageur	Total
Annual demand (units)	100	100	90	140	430
hours required in bottleneck operation per unit	10	12	8	10	40
Total hours required to meet annual demand	1000	1200	720	1400	4320

Solution 2 a:

Computation of total hours required in the bottleneck opertion
Particulars	Adirondack	Lake Huron	Oysterman	Voyageur
hours required in bottleneck operation per unit	10	12	8	8
Contribution per unit	1190	1068	616	970
Contribution margin per hour	119	89	77	97
Rank	1	3	4	2

Solution 2b:

Calculation of Optimal production
Adriondack	1000	2600	100
Voyageur	1400	1200	140
Lake Huron	1200	0	100

Solution 3:

Computation of total hours required in the bottleneck opertion
Particulars	Adirondack	Lake Huron	Voyageur	Total
Optimal production units	100	140	100
Contribution per unit	1190	970	1068
Contribution margin	119000	135800	106800	361600