Fast Bikes Manufactures Bicycles for Mountain and Road Use

Essay

Fast Bikes manufactures bicycles for mountain and road use. At its plant in Winnipeg, it assembles two bikes: premier and regular mountain bikes. Here is information for these bikes.
Premier Regular
Selling price $1,600 $1,000
Variable costs per unit 1,200 500
Contribution margin per unit $400 $ 500
Contribution margin ratio 25% 50%
Variable costs include only direct materials and direct labour. There are only 600 machine hours available each day for manufacturing the bikes. Additional capacity cannot be obtained in the short run. Fast Bikes can sell as many of these mountain bikes as it produces. Premier bikes require 2 machine-hours each, and regular bikes require 5 machine-hours each.
a)Which product should Fast Bikes emphasize?
b)Currently there are no variable costs associated with machine operations; all costs are fixed. Up to what maximum amount per machine-hour would Fast Bike be willing to pay to increase the number of machine hours available?