Fast Track produces two types of exercise treadmills regular

Fast Track produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Fast Track could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models are as follows: Data Per Unit DeluxeRegular $1,010 $590 Sales Price Costs: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable operating expenses Total costs Operating income 310 76 140 188 282 94 108 119 895 $115 36 71 529 $61 allocated on the basis of machine hours

Solution

Req 2 Fast Track should produce the product with the highest contribution margin per unit of the constraint. Req 2 Deluxe treadmill Regular treadmill Sales price per unit $                      1,010 $                       590 variable cost per unit                              787                           493 (310+76+282+119) (140+188+94+71) Contribution margin per unit                              223                              97 Calculate the proportion of machine hours used. Fixed overhead / Total overhead = Proportion of machine hours used Deluxe treadmill 108 / 144 = 75% Regular treadmill 36 / 144 = 25% Calculate the contribution margin per machine hour. Deluxe treadmill Regular treadmill Units that can be produced each machine hour 1 3 Contribution margin per machine hour 223 291 (223 x 1) (97 x 3) Req 3 Fast tarck should produce only the Regular model because it has highest contribution margin per machine hour