E25-15 lifemaster produces two types of exercise treadmills: regular

E25-15 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.

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