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Question: omnisport manufactures and sells sports equipment it currently produces and...

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Omnisport manufactures and sells sports equipment. It currently produces and sells 5,000 pairs (units) of in-line skates each year, operating at maximum machine capacity. Omnisport’s market research has revealed that it could sell 8,000 pairs of in-line skates annually. Calcott Inc., a nearby supplier, has offered to supply up to 6,000 pairs of in-line skates at a price of $75 per pair. However, Jack Petrone, Omnisport’s product manager, has noticed the current snowboarding craze and believes that Omnisport could sell up to 12,000 pairs (units) of snowboard bindings annually. Omnisport’s management accountant summarizes the available data:

Manufactured Inline Skates (pair)

Snowboard Bindings (pair)

Purchased Inline Skates (pair)

Selling Price

$98

$60

$98

Cost per unit

Purchase cost

-

-

$75

Direct material

20

20

-

Variable machine operating cost ($16 per machine hour)

24

8

-

Variable and fixed manufacturing overhead (allocation base: machine hours)

18

6

-

Variable marketing and administrative cost

9

8

4

  • Fixed manufacturing overhead costs of $30,000 are not affected by the product-mix decision.
  • • Fixed manufacturing overhead costs are allocated to products based on a machine-hour rate, which is calculated by dividing total fixed manufacturing overhead costs of $30,000 by machine-hour capacity.
  • • Fixed marketing and administrative costs of $60,000 are not affected by the product-mix decision.

Use Solver to determine the quantity of each product that Omnisport should manufacture and sell or purchased and sell to maximize operating income. What is the maximum operating income Omnisport can earn?

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