Problem:
Taylor company produces two industrial cleansers that use the same liquid chemical input: pocolimpio and maslimpio. Pocolimpio uses two quarts of the chemical for every unit produced, and maslimpio uses five quarts. Currently, Taylor has 6,000 quarts of the material in inventory. All of the material is imported. For the coming year. Taylor plans to import 6,000 quarts to produce 1,000 units of Pocolimpio and 2000 units of Maslimpio. The details of each product's unit contribution margin follows:
Pocolimpio Maslimpio
Selling price $81 $139
less variable expenses:
Direct materials 20 50
Direct labor 21 14
Variable overhead 10 15
Contribution margin 30 60
Taylor company has received word that the source of the material has been shut down by embargo. Consequently, the company will not be able to import the 6000 quarts it planned to use in the coming year's production. There is no other source for the material.
Required
a. Compute the total CM the company would earn if the company could import the 6,000 quarts of the material
b. Determine the optimal usage of the company's inventory of 6,000 quarts of the material.