Question

Domestic Engines Company produces the same power generators in two plants, a newly renovated, automated plant in Peona, and an older, less automated plant in Modine. The following data are available for the two plants:
All unit fixed costs are calculated based on a normal year of 240 working days. When the number of working days exceeds 240, variable manufacturing costs increase by $3.00 per unit in Peona and $8.00 per unit in Modine.
Domestic Engines is expected to produce and sell 192,000 generators during the coming year. Wanting to maximize the higher unit profit at Modine, Domestic Engines' production manager has decided to manufacture 96,000 units at each plant. This production plan results in Modine operating at capacity (320 units per day 300 days) and Peona operating at its normal volume (400 units per day 240 days).
REQUIRED
1. Determine the breakeven point for the Peona and Modine plants in units.
2. Calculate the operating income that would result from the division production manager's plan to produce 96,000 units at each plant.
3. Determine how the production of the 192,000 units should be allocated between Peona and Modine to maximize operating income for Domestic Engines. Show your calculations.


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  • CreatedJuly 31, 2015
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