Purchase Solution

# Product Pricing and Profit Analysis in Bottleneck Operations

Not what you're looking for?

Atlas Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Atlas is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Atlas wants to improve steel operation profitability. The variable conversion cost is \$6 per process hour. The fixed cost is\$1,530,000. In addition, the cost analyst was able to determine the following information about the three products:

Budgeted units produced 6,000 6,000 6,000
Total process hours per unit 15 15 12
Furnace hours per unit 5 3 2
Unit selling price \$375 \$350 \$320
Direct materials cost per unit \$160 \$140 \$130

The furnace operation is part of the total process for each of these three products. Thus, for example, 5 of the 15 hours required to process High Grade steel are associated with the furnace.
Instructions:

Determine the unit contribution margin for each product.
Provide an analysis to determine the relative product profitabilities, assuming that the furnace is a bottleneck.
Assume that management wishes to improve profitability by increasing prices on selected products. At what price would High and Good grades need to be offered in order to produce the same relative profitability as Regular Grade Steel?

##### Solution Summary

The solution offers detailed discussion for Product Pricing and Profit Analysis with Bottleneck Operations.

##### Free BrainMass Quizzes

Each question is a choice-summary multiple choice question that will present you with a linear equation and then make 4 statements about that equation. You must determine which of the 4 statements are true (if any) in regards to the equation.

##### Geometry - Real Life Application Problems

Understanding of how geometry applies to in real-world contexts

##### Exponential Expressions

In this quiz, you will have a chance to practice basic terminology of exponential expressions and how to evaluate them.

##### Graphs and Functions

This quiz helps you easily identify a function and test your understanding of ranges, domains , function inverses and transformations.

##### Probability Quiz

Some questions on probability