All fixed costs per unit are calculated based on a normal capacity usage consisting of 240 working days. When the number of working days exceeds 240, overtime charges raise the variable manufacturing costs of additional units by $3 per unit in Peoria and $8 per unit in Moline.
Domestic Engines Co. is expected to produce and sell 192000 power generators during the coming year. Wanting to take advantage of the higher operating income per unit at Moline, the company’s production manager has decided to manufacture 96000 units at each plant, resulting in a plan in which Moline operates at capacity (320 units per day X 300 days) and Peoria operates at its normal volume (400 units per day X 240 days).
1. Calculate the breakeven point in units for the Peoria plant and for the Moline plant.
2. Calculate the operating income that would result from the production manager’s plan to produce 96000 units at each plant.
3. Determine how the production of 192000 units should be allocated between the Peoria and Moline plants to maximize operating income for Domestic Engines. Show your calculations.
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