Easton Company manufactures and sells three models of baby cribs €“ Angel, Bella, and Cutie. The information on these three products is as follows:

Easton€™s production capacity is 20,000 machine-hours per year. Product line fi xed costs can be eliminated if the product is not produced.

REQUIRED

A. Compute the profi tability index for each model and rank the order of priority for the models to be produced.
B. Given the machine hour constraint, how many hours should Easton purchase to meet all the product demand. What is the maximum price that Easton would pay for each additional hour purchased?
C. Suppose Easton cannot purchase more hours from outside. Also suppose that one of the machines breaks down and it will take a couple of months to replace a part. As a result, the capacity is down to 16,550 hours. Should Easton make all three models? If not, which model should Easton drop? What is the impact on the operating income if Easton drops this model?

Transcribed Image Text:

Bella $680 340 10 800 $90,000 $102,000 Angel Cutie Selling Price Variable costs Machine-hour per unit Demand (units) Product line fixed costs $800 440 12 500 $450 270 7.5 1,200 $72,000