Sunfish Valves Company (SVC) produces two valves that are used in irrigation systems. The following exhibit provides product details: 

The availability of labor hours limits (constrains) the sales of the two products. The marketing manager provided the maximum sales for each product shown in the above table. The production manager has advised the general manager that a new collective agreement limited the maximum labor hours to 9,025. 

After the general manager developed this income statement, she shared it with the production and marketing manager. After some quick calculations, the marketing manager determined that if production and sales of both products were each reduced by 5%, there would be exactly enough production capacity to meet the resulting production levels of the two products. The general manager concurred and proceeded to develop a revised production plan. 

Required 

(a) What is the sales level that would result in SVC breaking even if the sales mix is 25/43 standard and 18/43 deluxe?

(b) The general manager shared the planned production mix in part (a) with her son, a business student at a local university. The son said, “This is not the optimal production plan, and I’ll show you the best mix later.” Show that the son was correct by determining the optimal production plan. 

(c) After the optimal production plan in part (b) was chosen, the marketing manager announced that he had just received a one-time offer to purchase 2,000 units of a new product, a medium pressure valve. The offer price per valve was $33, the variable cost per valve was $25, and it would take 0.15 labor hours to produce each one of these valves. If the offer is accepted, SVC must deliver all 2,000 units. The general manager was unsure whether this offer should be accepted, but she was doubtful because the valve contribution margin was only $8, which was less than the contribution margins of the existing products. Determine whether this offer should be accepted. If so, what would be the revised production plan?  

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Price.... Variable cost. Contribution margin Maximum demand (units).. Labor hours (per unit).. PER UNIT STANDARD $30.00 20.00 $10.00 25,000 0.20 DELUXE $42.00 30.00 $12.00 18,000 0.25 COMPANY FIXED COSTS $400,000