Figure 13-3. Elegance Bath Products,Inc.(EBP)makes a variety of ceramic sinks and tubs.EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $150 each and have variable costs of $80.The tubs sell for $600 and have variable costs of $450.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 4,050 hours of capacity per year.A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time.
Refer to Figure 13-3.Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year.How many tubs should EBP produce?
A)1,000
B)500
C)410
D)675
E)zero

Question

Quizplus · Accepted Answer

First, we need to determine the total hours of specialized molding equipment required for the production of 1,000 sinks and 500 tubs:

(1,000 sinks x 2 hours per sink) + (500 tubs x 5 hours per tub) = 2,000 + 2,500 = 4,500 hours

Since the specialized molding equipment has a capacity of 4,050 hours per year, EBP cannot produce all 1,000 sinks and 500 tubs.

Next, we need to determine the maximum number of tubs that EBP can produce given the limitations of the specialized molding equipment. We can do this by converting the available hours of specialized molding equipment into the equivalent number of tubs.

4,050 hours / 5 hours per tub = 810 tubs

Therefore, EBP can produce a maximum of 810 tubs per year.

Finally, we need to determine how many tubs EBP should produce in order to maximize profits. We can do this by calculating the contribution margin per unit for each product:

Contribution margin per sink = Selling price - Variable cost = $150 - $80 = $70
Contribution margin per tub = Selling price - Variable cost = $600 - $450 = $150

Since the contribution margin per tub is higher than the contribution margin per sink, EBP should produce as many tubs as possible with the available specialized molding equipment.

Answer: C

EBP can produce a total of 810 tubs per year with the available specialized molding equipment. Therefore, EBP should produce 410 tubs since 410 tubs x 5 hours per tub = 2,050 hours of specialized molding equipment, leaving 1,000 sinks x 2 hours per sink = 2,000 hours of specialized molding equipment for the production of sinks.