San Fran Cycles manually manufactures three unique bicycle models: racing, touring and basic. All of the skilled craftspeople employed at San Fran can make each of the three models. Because it takes about a year to train each craftsperson, labor is a fixed production constraint over the short term. For 2013, the company expects to have available 34,000 labor hours. The average hourly labor rate is $30. Data regarding the current product line follow:
Selling prices Racing $3,600 Touring $2720 Basic $960
Variable costs for Racing: Direct material $880, Direct Labor 1500, Variable factory overhead 720, variable selling 80.
Variable costs for Touring: DM $640, DL 1,050, Variable factory overhead 480, variable selling 60.
Variable costs for Basic: DM 240, DL 300, Variable factory overhead 164, variable selling 40.
Fixed costs:
Factory $400,000
Selling and administrative 100,000
The company pays taxes at the rate of 50 percent of operating income.
If an unlimited amount of any product can be sold, how many of each product should the company make? What pre-tax income will the company earn given your answer?
1. Calculation of Quantity to be producedParticularsSPVCDirect materialDirect labourVariable FOVariable Selling Racing3600 Touring2720 Basic960 880150072080 640105048060 240300…
