The Morton Company produces and sells two products: A and B. Financial data rela
ID: 1200776 • Letter: T
Question
The Morton Company produces and sells two products: A and B. Financial data related to producing these two products are summarized as in the table below. If these products are sold in the ratio of four A's for every three B's, what is the break-even point? If the product mix has changed to five A's to five B's, what would happen to the break-even point? In order to maximize the profit, which product mix should be pushed? If both products must go through the same manufacturing machine and there are only 30,000 machine hours available per period, which product should be pushed? Assume that product A requires 0.5 hour per unit and B requires 0.25 hour per unit.Explanation / Answer
a) Let the product X be either 4A and 3B
So the Selling Price Of A=4*10=40 and B=3*12=36 so total is 76
VC of A = 5*4 = 20 and B=10*3=30 total is 50
76X = 50X + 2600
X = 100
So break even point is 400 unit of A and 300 unit of B
b) Let the product X be either 5A and 5B
So the Selling Price Of A=5*10=50 and B=5*12=60 so total is 110
VC of A = 5*5 = 25 and B=10*5=50 total is 75
110X = 75X + 2600
X = 74.3
So break even point is 5*74.3 = 371 unit of A and 5*74.3 = 371 unit of B
c) As selling price of mix (a)= 10*4+3*12 = 76 and VC = 5*4+3*10 = 50
so profit per unit of product mix = 26
As selling price of mix (b)= 10*5+5*12 = 110 and VC = 5*5+5*10 = 75
so profit per unit of product mix = 35
So mix (b) should be pushed.
d) Now time consumed by product A is twice the product B and profit per unit A = 10-5 = 5 and profit per unit B = 2
Now profit of producing one unit of A > profit of producing 2 unit of B so product B shhould be pushed.