Product mix special order pricing

Carolina Chemicals $($CC$)$ produces KleenBright, a solvent that is used in many industrial applications.

Several customers have suggested that KleenBright be processed to produce a more aggressive

solvent. CC has considered this suggestion and developed two new products: KleenMax and KleenUltra.

CC would produce KleenMax by processing KleenBright further and KleenUltra would be produced

processing KleenMax further. The marketing manager and plant controller have prepared the following

price, demand, and cost estimates. Plant capacity at CC is determined by the capacity of the

blending machines, which is $10,000$ hours.

Sales Information

KleenBright KleenMax KleenUltra

Price per kiloliter $($KL$)$ $$1,000$ $$1,500$ $$2,000$

Maximum demand $($KL$)1,000700400$

Cost Per Kiloliter

Manufacturing costs

Direct material $$500$ $$300$ $$400$

Kleenbright $07201,145$

Direct labor $1003010$

Manufacturing overhead

Variable $201510$

Fixed $1008060$

Total manufacturing cost $$720$ $$1,145$ $$1,625$

Selling cost

Variable $$100$ $$150$ $$200$

Fixed $506070$

Total selling cost $$150$ $$210$ $$270$

Total product cost $$870$ $$1,355$ $$1,895$

Total blending machine hours per KL $5810$

$($a$)$ What production level of the three products will result in the highest contribution margin?

KleenBright Answer $1$

$1000$

KleenMax Answer $2$

$625$

KleenUltra Answer $3$

$0$

Round down to the nearest KL$.$

$($b$)$ A customer is willing to sign a contract to purchase as many kiloliters of KleenUltra that CC can

provide in the upcoming period. If accepting this offer will have no effect on the sales of any product

beyond this period, what is the minimum price per unit that CC should be willing to accept for

this special order? $($All blending machine hours would be available to produce KleenUltra.$)$

Round to two decimals places.

$Answer $4$