Boxes Unlimited produces plastic storage bins for household storage needs. The company makes two sizes of bins: Large (50 gallon) and Regular (35 gallon). Demand for the product is so high that Boxes Unlimited can sell as many of each size as it can produce. The company uses the same machinery to produce both sizes. The machinery can be run for only 3,500 hours per period. The company can produce 11 large bins every hour compared to 15 Regular bins in the same amount of time. Fixed expenses amount to $100,000 per period. Sales prices and variable costs are as follows:
____________________________________________________Regular Large
Sales price per unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8.50.............$10.60
Variable cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.50.............$ 4.60
1. Which product should Boxes Unlimited emphasize? Why?
2. To maximize profits, how many of each size bin should the company produce?
3. Given this product mix, what will the company's operating income be?