80.2K

Verified Solution

Link Copied!

Layton Machining Company (LMC) manufactures two versions of a basic machine tool. One version is a standard model and one is a custom model, which requires some additional work and slightly higher-grade materials. The manufacturing process at LMC requires that each product go through two departments, Grinding and Finishing. The process in each department uses a single type of machine. Total machine capacity in Grinding is 51,000 hours, and in Finishing, total machine capacity is 31,000 hours. (Each department has multiple machines.) Total market demand is limited to 102,000 standard units and 122,000 custom units monthly. LMC is currently producing 92,000 standard units and 53,000 custom units each month. Cost and machine-usage data for the two products follow:

	Standard			Custom			Total
Price	$	6.70		$	8.70
Less variable costs per unit
Material		1.55			2.05
Labor		1.30			1.55
Overhead		1.80			2.55
Contribution margin per unit	$	2.05		$	2.55
Fixed costs
Manufacturing							$	77,000
Marketing and administrative								38,000
							$	115,000
Grinding machine hours per unit		0.2			0.3
Finishing machine hours per unit		0.1			0.4
Grinding machine hours used								34,300
Grinding machine hours available								51,000
Finishing machine hours used								30,400
Finishing machine hours available								31,000
Quantity produced		92,000			53,000
Maximum demand		102,000			122,000
Profit	$	208,750

a. What is the optimal production schedule for LMC? In other words, how many standard units and custom units should the company produce each month to maximize monthly profit?

Standard Units ____

Custom Units ____

b. If LMC produces at the level found in requirement (a), how much will monthly profit increase over the current production schedule?

Increase profits by ____

Answer & Explanation Solved by verified expert

See Answer