Yoshi Co. manufactures three different models of colour plasma screens: PS1, PS2, and PS3. Data on the three models is presented below:
Yoshi’s production capacity is 90,000 machine-hours per year.
Chiyo Co. has offered to purchase 4,800 units of a simpler version of PS3 for $435. Yoshi estimates that this version of the PS3 would result in variable costs of $305 per unit to manufacture and 7 machine hours per unit, but an additional fi xed cost of $62,000 for a new assembly machine. The order has to be either taken in full or rejected totally. If Yoshi takes the special order, it will not produce and sell PS3 to compete with Chiyo.
REQUIRED
A. Compute the profi tability index for each model and rank the order of priority for the models to be produced.
B. Given the machine hour constraint, for which model should production be reduced and by how many units? If Yoshi can purchase additional machine hours from another plant, how much would Yoshi be willing to pay to meet its production requirement?
C. Should Yoshi accept the special order from Chiyo? What is the incremental operating income/loss for accepting this order?
D. Given the machine hour constraint, what is the impact, if any, on the production of PS1 or PS2?
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