### What is the maximum total income

##### Reference no: EM132735

Question:

Bell Inc. manufactures ACC222, an over the counter medication that actives all accounting students to earn no less than a B in Managerial Accounting. The cost of manufacturing this medication is \$10 per bottle and the present selling price is \$20 per bottle. A certain amount of ACC222 is further manufactured into ACC333, a similar medication to be used only by accounting majors. Each bottle of ACC222 is mixed with certain additional ingrediants to form ACC333. Each Bottle of ACC333 contains one-half of a bottle of ACC222 and additional ingrediants, which cost \$5 per bottle. If ACC333 production was to be stopped, certain production assets related only to ACC333 could be sold for \$10,000. ACC333 is sold for \$25.00 per bottle. Consider there is unlimited demand for both ACC222 and ACC333.

1. How many bottles of ACC333 must be sold in order to justify the production of ACC333?

2. Describe how the assumption of unlimited demand for both products impacts your answer. On other words, if there was a limited demand for ACC222 and/or ACC333, how would you change your evaluation to take this into consideration?

For the subsequent question, please refer to the data for below for ABC Company:

In Department A, two products are sold, Product A and Product B. A is sold for \$80/unit and has a variable cost of \$50/unit. B is sold for \$40/unit and has a variable cost of \$30/unit. The direct labor hours for each unit of A are 3 and for B are 2. There are 80,000 direct labor hours available to the company. Demand by consumers for A and B is 20,000 units each.

In Department B, Product C is produced. The revenue per unit is \$120 and the variable cost per unit is \$100. Demand is 5,000 units. A portion of the direct labor (a portion of the variable costs) on Product C would be replaced by Product A (i.e., you have the cost of Product A rather than the direct labor of C) and save \$20 of direct labor per unit of C.

1. Provided the data presented in the problem, what is the maximum total income that will be earned by the company as a whole?

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