Consider Storage Solutions from S8-9. Assume that demand for Regular bins is limited to 36,000 units and demand for Large bins is limited to 25,000 units.

1. How many of each size bin should the company make now?

2. Given this product mix, what will be the company’s operating income?

3. Explain why the operating income is less than it was when the company was producing its optimal product mix.

Data From S8-9:-

Storage Solutions 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 the company can sell as many of each size as it can produce.

The same machinery is used to produce both sizes. The machinery is available for only 3,000 hours per period. The company can produce 10 Large bins every hour compared to 15 Regular bins in the same amount of time. Fixed expenses amount to \($110,000\) per period. Sales prices and variable costs are as follows:

Regular Large Sales price per unit........... Variable cost per unit. $8.10 $10.50 $3.50 $ 4.20