Profitability Analysis
Consider again the Windbreakers firm described in the text. Suppose that Windbreakers determines that drop- ping the Gale product line will release production capacity so that it can manufacture additional units of Windy. Assume that, as described in the text, the two production constraints are the automated sewing machine and the inspection and packing operation. The automated sewing machine can make 20 Windys or 30 Gales per hour. As before, the inspection operation requires 15 minutes for a Windy (4 per hour) and 5 minutes for a Gale (12 per hour). Currently, 3,750 Gales and 18,750 Windys are being manufactured and sold. Sales projections show that sales of Windy could be increased to 30,000 units if additional capacity were available.
Required
1. If Windbreakers deletes Gale entirely, how many units of Windy can it manufacture with the released capacity?
2. What is the dollar effect on net income if Windbreakers drops the production and sale of Gale and uses the released capacity for Windy?
3. What other factors should Windbreakers consider in its decision to drop Gale and use the released capacity to produce additional units of Windy?