Capacity constraints, product mix
Bailey Company produces two kinds of paper shredders, Cross Cut that cuts up to three sheets of paper at a time and Micro Cut that cuts up to 15 sheets of paper at a time in the smallest size cut The selling prices, costs and contribution margins are as follows
|Cross Cut||Micro Cut|
|Sales Price per Shredder||\$80||\$100|
|Variable Cost per Shredder||\$50||\$60|
|Contribution Margin per Shredder||\$30||\$40|
|Machine Hours required per Shredder||1||2|
The capacity constraint is that only 300 machine hours are available daily for producing shredders at a total fixed cost of $6,000 daily. Assume that demand is high for both products, thus all units produced can be sold.
What relevant factors should be considered in maximizing operating income?