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2 September, 20:21

Handi-Tool Company manufactures and sells lawn and garden tools. Handi manufactures three kinds of pruning shears: Snip-It, Deluxe Clipper, and Limb-Away. The demand for the pruning shears is highest in April. Expecting this trend to continue, Handi is interested in how to best utilize available capacity. Given the following information, what combination of pruning shears should Handi-Tool produce?

Snip-It Deluxe Clipper Limb-Away

Demand 200,000 100,000 60,000

Unit Price $20 $30 $50

Unit variable cost $10 $15 $20

Unit contribution margin $10 $15 $30

Production rate (units per hour) 50 25 15

Available production hours 8,000 hrs

Total fixed costs $400,000

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  1. 2 September, 22:13
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    Snip-It: 4,000 hours

    Limb-away: 4,000 hours

    Income:

    Contribution $500 x 4,000 + $450 x 4,000

    less Fixed Cost: $400,000

    Operating income: 3,400,000

    Explanation:

    We will calculate the contribution margin per hour

    We will set primary production to the higher contribution per hour then, the second and leftoer to the third product:

    Snip-It:

    $10 contribution per unit x 50 units per hour = $500

    Deluxe Clipper:

    $15 contribution x 25 units per hour = $375

    Limb-away:

    $30 contribution x 15 units per hour = $450

    We will first do the 200,000 units of Snip-it

    200,000 / 50 = 4,000 hours

    Then, Limb-Away

    60,000 / 15 = 4,000

    As we complete our production hours we will not produce Dexule Clipper
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