C10 Table.pdf - Score 15/15 Points 100 1 Award 15 out of 15.00 points Tyler Guitars makes acoustic and electric guitars It is struggling to determine

C10 Table.pdf - Score 15/15 Points 100 1 Award 15 out of...

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Unformatted text preview: Score: 15/15 Points 100 % 1. Award: 15 out of 15.00 points Tyler Guitars makes acoustic and electric guitars. It is struggling to determine the profitability of each guitar and deciding on which guitar to focus its sales efforts. Tyler currently operates a single 8-hour shift for 22 days per month. The Tableau Dashboard shows data from the recent month. Maximum Guitar Sales per Selling Price & Variable Costs per Guitar Machine Hours per Guitar Month About Tableau Undo 1. The company is considering adding a second 8-hour shift for 22 days each month, which would increase fixed costs by $9,000. (a) Compute the most profitable sales mix for the company if it adds a second shift. (b) Should the company add the second shift? Acoustic (a) (b) Electric Total Hours dedicated to the production of each product 262 90 Units produced for the most profitable sales mix 131 30 Contribution margin per unit $ 130 $ 180 Total contribution margin – two shifts $ 17,030 $ 5,400 352 $ 22,430 Total contribution margin – one shift 11,440 Incremental revenue - Change in contribution margin 10,990 Incremental expense - Change in fixed costs Total incremental income $ Should the company add another shift? Yes 9,000 1,990 rev: 04_31_2019_QC_CS-168731 References Worksheet Difficulty: 3 Hard Learning Objective: 10-P3 Determine sales mix with constrained resources. Tyler Guitars makes acoustic and electric guitars. It is struggling to determine the profitability of each guitar and deciding on which guitar to focus its sales efforts. Tyler currently operates a single 8-hour shift for 22 days per month. The Tableau Dashboard shows data from the recent month. Maximum Guitar Sales per Selling Price & Variable Costs per Guitar Machine Hours per Guitar Month About Tableau Undo 1. The company is considering adding a second 8-hour shift for 22 days each month, which would increase fixed costs by $9,000. (a) Compute the most profitable sales mix for the company if it adds a second shift. (b) Should the company add the second shift? Acoustic (a) (b) Electric Total Hours dedicated to the production of each product 262 90 Units produced for the most profitable sales mix 131 30 Contribution margin per unit $ 130 $ 180 Total contribution margin – two shifts $ 17,030 $ 5,400 352 F F $ 22,430 Total contribution margin – one shift 11,440 Incremental revenue - Change in contribution margin 10,990 F Incremental expense - Change in fixed costs 9,000 Total incremental income Should the company add another shift? rev: 04_31_2019_QC_CS-168731 $ Yes 1,990 Explanation: 1. If the second shift is added, the maximum total output of acoustic guitars will double Maximum output = 352 hrs. per mo. 2 hrs. per unit = 176 units per month However, this level of output exceeds the company’s market constraint of 131 acoustic guitar sales per month. This means Tyler Guitars should produce 131 acoustic guitars and commit the remainder of the productive capacity to electric guitars. This is computed as follows: Acoustic guitars Hours per unit Hours used for acoustic guitars Hours available for electric guitars (352 hrs – 262 hrs) 131 units per month 2 262 hours 90 hours The output of electric guitars with 90 production hours is Units of electric guitars = 90 hrs. per mo. 3 hrs. per unit = 30 units per month This will result in the most profitable sales mix consisting of 131 acoustic guitars and 30 electric guitars. Contribution Margin at This Sales Mix From acoustic guitars From electric guitars Less extra shift costs Total incremental income Units 131 30 Contr./unit $130 180 Total $17,030 5,400 (9,000) $13,430 Management decision. The contribution margin of $13,430 exceeds the contribution margin of $11,440 generated by one shift alone (see Exercise). Therefore, Tyler Guitars should add the second shift. ...
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