The Domestic Engines Co_CVA Analysis

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Description

Deciding where to produce (CMA, adapted) The Domestic Engines Co.
produces the same power generators in two Illinois plants, a new plant in
Peoria and an older plant in Moline. The following data are available for the
two plants:

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 addition units by
$3.00 per unit in Peoria and $8.00 per unit in Moline. Domestic Engines Cc.
is expected to produce and sell 192,000 power generators during the coming
wanting to take advantage of the higher operating income per unit at Moline,
the company’s product manager has decided to manufacture 96,000 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 X
240 days). If you want to use Excel to solve this problem, go to the Excel
Lab at www.prenhall.com/horngren/costl3e and download the template for
Problem 3-49.
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 96,000 units at each plant.
3. Determine how the production of 192,000 units should be allocated between
the Peoria and Moline plants to maximize operating income for Domestic
Engines. Show your calculations.

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