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Sales Mix Decision & Special Order Decision

Questions and worksheet attached.

E6: Sales Mix Decision
Grady Enterprises manufactures three computer games. They are called Rising Star, Ghost Master, and Road Warrior. The product line data are as follows:

Rising Star Ghost Master Road Warrior

Current Unit sales demand 20,000 30,000 18,000
Machine Hours per unit 2 1 2.5
Selling price per unit $24.00 $18.00 $32.00
Unit variable manufacturing costs $12.50 $10.00 $18.75
Unit variable selling costs $6.50 $5.00 $6.25

The current production capacity is 100,000 machine hours.

1. Which computer game should be manufactured first? Second? Last?

2. How many of each type of computer gram should be manufactured and sold to maximize the company's contribution margin based on the current production activity of 100,000 machine hours? What is the total contribution margin for that combination?

P3: Special Order Decision
Keystone Resorts, Ltd, has approached Crystal Printers Inc., with a special order to produce 30,000 two-page brochures. Most of Crystal's work consists of recurring short-run orders. Keystone Resorts is offering a one time order, and Crystal has the capacity to handle the order over a two-month period.

Keystone's management has stated that the company would be willing to pay more than $48 per 1,000 brochures. Crystal's controller assembled the following cost data for this decision analysis:
Direct Materials (paper) $26.50 per 1,000 brochures
Direct Labor cost $6.80 per 1,000 brochures
Direct Materials (ink) $4.40 per $1,000 brochures
Variable production overhead $6.20 per 1,000 brochures
Machine maintenance (fixed cost) is $1.00 per Direct Labor dollar
Other fixed production overhead amounts to $2.40 per Direct Labor dollar
Variable packing costs would be $4.30 per 1,000 brochures.
General and Administrative (fixed cost) $5.25 per Direct Labor dollar

1. Prepare an analysis for Crystal management to use in deciding whether to accept or reject Keystone Resorts' offer. What decision should be made?


Solution Summary

The solution explains how to determine the sales mix in a constrained resource situation and accept/reject a special order