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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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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.]

8-23 Determining the Optimal Product Mix with One Constrained Resource and a Sales Constraint

Refer to the information for Comfy Fit Company on the previous page. Assume that a maximum of 40,000 units of each sweatshirt can be sold.

Required:

  1. 1. What is the contribution margin per hour of machine time for each type of sweatshirt?
  2. 2. What is the optimal mix of sweatshirts?
  3. 3. What is the total contribution margin earned for the optimal mix?

1.

To determine

Calculate the contribution margin per machine hours for each type of sweatshirt.

Explanation

Contribution Margin:

Contribution margin can be defined as the amount of difference the sales revenue and the variable expense. It means the amount of sales left over after covering the variable expenses.

The following table represents the contribution margin per machine hours for each type of sweatshirt:

 Swoop ($)Rufus ($)
Contribution margin per unit515
Required machine hours per unit10.100.33
Contribution margin per machine hours25045

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:

Required machine hours=Time required in SwoopNumber of minutes in an hour=6minutes60minutes=0.10hour

Hence, the required machine hour per unit for Swoop is 0.10 hour.

Calculation of required machine hours per unit for Rufus:

Required machine hours=Time required in RufusNumber of minutes in an hour=20minutes60minutes=0

2.

To determine

Calculate the optimal mix of the sweatshirt.

3.

To determine

Calculate the contribution margin earned for the optimal mix.

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