Toshovo Computer owns four production plants at which computer workstations are produced. The company can sell up to 40,000 computers per year at a price of $1500 per computer. For each plant, the production capacity, the production cost per computer, and the fixed cost of operating a plant for a year are given in the file P06_56.xlsx . Determine how Toshovo can maximize its yearly profit from computer production.

Question Completion:

Toshovo computer data

                                    Plant 1          Plant 2         Plant 3         Plant 4

Plant fixed cost       $6,000,000 $5,000,000 $3,000,000 $2,000,000

Cost per computer         $1,000            $900            $800            $750

Capacity                          15,000         10,000          12,000            8,000

Toshovo Computer

Toshovo can maximize its yearly profits from computer production by producing at full capacity at Plants 4, 3, and 2.  At Plant 1, it should produce only 10,000.

It can also decide to double its capacity at Plants 4 and 3 and eliminate its Plants 1 and 2 with high fixed costs.

Explanation:

a) Data and Calculations:

Estimated number of computers per year = 40,000

Price per computer = $1,500

Toshovo computer data

                                    Plant 1          Plant 2         Plant 3         Plant 4

Plant fixed cost       $6,000,000 $5,000,000 $3,000,000 $2,000,000

Cost per computer         $1,000            $900            $800             $750

Fixed cost per unit              400              500              250               250

Total costs per unit        $1,400          $1,400          $1,050          $1,000

Selling price per unit     $1,500          $1,500          $1,500          $1,500

Profit per unit                   $100            $100            $450              $500

Capacity                        15,000          10,000          12,000            8,000

Plants                Units to be        Profit

                          Produced        Per Unit

Plant 1                    8,000            $500

Plant 2                 12,000            $450

Plant 3                 10,000             $100

Plant 4                 10,000            -$100

Total produced  40,000

answer; drop shippers;

a) both were commissioned explorers