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MBA 6315


Module 5 Excel Workbook Assignment MBA 6315 Problem B (30 points): EasyBake Company is able to produce two toy products, a Little Oven and a Big Oven, with the same machine in its factory. NOTE that only ONE Oven can be manufactured at a time using this machine. The Company currently makes both ovens, but management is concerned that this strategy is not providing maximum benefit. They are thinking of adding a second shift and have asked you to figure out their best course of action. The following information is available: EasyBake Data: Little Oven Big Oven Selling price per unit 110 150 Variable costs per unit 30 80 Contribution margin per unit 80 70 Machine hours to produce ONE unit 0.4 hours 1.0 hours Maximum customer demand for each Oven per month (max they can sell) 550 units 200 units The company presently operates the machine for a single eight-hour shift for 22 working days each month. Management is thinking about operating the machine for two shifts, which will increase its productivity by another eight hours per day for 22 days per month. This change would require $15,000 additional fixed costs per month. Required (NOTE--show all calculations for full credit): 1 Determine the contribution margin per machine hour that each product generates. (4 points) 2 How many units of the Little Oven and the Big Oven should the company produce if it continues to operate with only one shift? Assume all ovens produced are sold. (4 points) 3 How much total contribution margin does this sales mix produce each month? (4 points) 4 If the company adds another shift, how many units of the Little Oven and the Big Oven should it produce? (4 points) 5 How much total contribution margin would this mix produce each month? (4 points) 6 Should the company add the new shift? (4 points) 7 Suppose that, based on market research, the company determines that it can increase the Little Oven's maximum sales to 650 units per month by spending $12,000 per month in marketing efforts, which is a fixed cost. Should the company pursue this strategy and the double shift? Provide support for your answer. (6 points)