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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
Use the following information for Brief Exercises 8-22 and 8-23:
Comfy Fit Company manufactures two types of university sweatshirts, the Swoop and the Rufus, with unit contribution margins of $5 and $15, respectively. Regardless of type, each sweatshirt must be fed through a stitching machine to affix the appropriate university logo. The firm leases seven machines that each provides 1,000 hours of machine time per year. Each Swoop sweatshirt requires 6 minutes of machine time, and each Rufus sweatshirt requires 20 minutes of machine time. [Note: For all answers that are less than 1.0, round the answer to two decimal places. For all unit answers (e.g., the answer is greater than 1.0), round the answer to the nearest whole number.]
8-22 Determining the Optimal Product Mix with One Constrained Resource
Refer to the information for Comfy Fit Company above. Assume that there are no other constraints.
Required:
- 1. What is the contribution margin per hour of machine time for each type of sweatshirt?
- 2. What is the optimal mix of sweatshirts?
- 3. What is the total contribution margin earned for the optimal mix?
1.
Calculate the contribution margin per machine hours for each type of sweatshirt.
Contribution Margin:
Contribution margin can be defined as the amount of difference between sales revenue and the variable expense. It means the amount of sales left over covering variable expenses.
The following table represents the contribution margin per machine hours for each type of sweatshirt:
| Â | Swoop ($) | Rufus ($) |
| Contribution margin per unit | 5 | 15 |
| Required machine hours per unit1 | 0.10 | 0.33 |
| Contribution margin per machine hours2 | 50 | 45 |
Table (1)
Therefore, the contribution margin per machine hours for Swoop and Rufus are $50 and $45 respectively.
Working Notes:
1. Calculation of required machine hours per unit for Swoop:
Hence, the required machine hour per unit for Swoop is 0.10 hour.
Calculation of required machine hours per unit for Rufus:
2.
Calculate the optimal mix of the sweatshirt.
3.
Calculate the contribution margin earned for the optimal mix.
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