Maxima Manufacturing Pty Ltd is a medium-sized manufacturing company with its administration office based in Sydney, NSW. It has been operating since 1990 and manufactures generators. The strategy of Maxima is to provide envirironmentally safe generators. It has two manufacturing plants that are based in Bathurst and Newcastle, NSW. Bathurst commenced manufacturing in 1990, while Newcastle commenced operations in 2005. The following information are available for the two manufacturing plants.

The Bathurst plant’s production rate is 320 generators per day, while Newcastle is 400. The normal and maximum annual capacity usage at both plants is 240 days and 300 days. Other details include: Newcastle Plant	Bathurst Plant
Selling Price	$450.00	$450.00
Manufacturing variable cost per unit	$216.00	$264.00
Manufacturing fixed cost per unit	90.00	45.00
Marketing variable cost per unit	42.00	42.00
Marketing fixed cost per unit	57.00	43.50
Total cost per unit	405.00	394.50
Operating income per unit	$45.00	$55.5

The Manger of Maxima, Mr Maxim Turner wants the production and sales increased in 2018. He has asked Mr Ivan Turnbull, the management accountant to work out the ideal number of generators to be manufactured to maximise production in 2018. Mr Turnbull wants to take advantage of the higher operating income at the Bathurst plant and decides 3

manufacturing of 96,000 units at each plant resulting in a plan in which Bathurst would operate at a maximum capacity (320 units per day x 300 days) and Newcastle operates at its normal volume (400 units per day x 240 days).

Assume you are Mr Turnbull, and prepare a report to the Manager to advise the results of your analysis in taking advantage of the higher operating income at the Bathurst plant.

Your report should include the following:

1. Show how you calculated the contribution margin per unit under normal production and under overtime production.

2. Show how you identified the break even point for both the plants.

3. Show how you determined the operating income, if 96,000 generators are manufactured at each plant.

4. Show, how the production of 192,000 generators should be allocated between the two plants to maximise the operating income for Maxima Manufacturing Pty Ltd.

Answer rating: 100% (QA)

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