Reference no: EM13867392

Nolan Industries manufactures control units that are used in high-speedproduction systems such as pulp and paper manufacturing. The companyhas two major products: the XR244 and the XR276. Punit Shah, the salesmanager at Nolan Industries, is preparing a production plan for theupcoming year and is evaluating a new product opportunity.Punit is studying the following summary information provided by thefinance group at Nolan Industries.In recent years the sales mix has been 40% XR244 and 60% XR276and Punit is wondering, given that XR276 is more profitable, whether abetter production mix would include more sales of the XR276. NolanXR244 XR276Selling price $785.00 $955.00Total costs 470.00 595.00Profit $315.00 $360.00Maximum sales (units) 10,000 15,000Machine hours (per unit) 2.50 3.00Chapter 3 Using Costs in Decision Making 63Industries has 48,000 machine hours available for the production of thesetwo products. A conversation with the plant accountant suggests toPunit that about 65% of product costs vary with the level of productionand that Nolan Industries' total fixed costs amount to $7,500,000.As he was considering these opportunities, Punit received an e-mailfrom a customer offering to buy 2,000 units of a specialty product thatwould sell for $1,200 per unit, have a cost of $820 per unit, and wouldrequire 3.5 hours per unit of production time to produce.Excluding the new product opportunity, Punit is wondering:1. How many units of each product would he have to sell to breakeven given the 40/60 mix?2. What is the maximum number of units he can sell given themachine hours constraint that he faces and given the 40/60 salesmix, and what is the profit at that sales level?3. Is there a better product mix than the 40/60 split?4. Finally, considering the new product opportunity, should Punitaccept the offer and, if so, what would be the resulting productionlevels and profit?