Rose Incorporated's Vase Production Decision

The assignment content is about Rose Incorporated, a company that manufactures two types of vases (small and large). The per-unit data provided includes sale price, variable costs, machine hours required for one vase, total fixed costs, and the maximum units that can be sold annually. The solutions to various problems are also provided, including calculating the contribution margin per unit and per machine hour, determining the number of units to produce to maximize operating income, and calculating the dollar amount of the maximum operating income.

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Rose Incorporated manufactures two types of vases, small and large. The following per-unit

data are available.
Small Vase Large Vase
Sale price $60 $100
Variable costs $35 $60
Machine hours required for 1 vase 1 2
Total fixed costs are $600,000, and Rose Incorporated can sell a maximum of 25,000 units
of each type of vase annually. Machine hour capacity is 50,000 hours per year.
a. Determine the contribution margin per unit for each type of vase.
Solution-
(i)
Small Vase
Sales Price (SP) $60
Less: Variable Costs (VC) 35
Contribution Margin
(CM)
$25
(ii)
Large Vase
Sales Price (SP) $100
Less: Variable Costs (VC) 60
Contribution Margin
(CM)
$40
b. Determine the contribution margin per machine hour for each type of vase.
Solution-
(i)
Small Vase
Sales Price (SP) $60
Less: Variable Costs (VC) 35
Contribution Margin (CM) $25
Divide: Machine hours 1
Contribution Margin (Per machine
hour)
$25
(ii)
Large Vase
Sales Price (SP) $100
Less: Variable Costs (VC) 60
Contribution Margin (CM) $40
Divide: Machine hours 2
Contribution Margin (Per machine $20

hour)
c. Determine the number of units of each style of vase that Rose Incorporated should
produce to maximize operating income.
Solution-
(i)
Small Vase
Total Hours Available 50,000
Less: Maximum Units 25,000
Remaining Hours 25,000
Machine hours 1
Units of Small Vase 25,000
(ii)
Large Vase
Total Hours Available 50,000
Less: Maximum Units 25,000
Remaining Hours 25,000
Machine hours 2
Units of Large Vase 12,500
d. What the dollar amount of the maximum operating income is as calculated in C above
Solution-
Small Vase (25,000*$25) $625,000
Large Vase (12,500*$40) $500,000
Contribution Margin (Total) $1,125,000
Less: Fixed Costs $600,000
Maximum Operating Income (Total) $525,500