Question

Rough Stuff makes 2 products: khaki shorts and khaki pants for men. Each product passes through the cutting machine area, which is the chief constraint during production. Khaki shorts take 15 minutes on the cutting machine and have a contribution margin per pair of shorts of $16. Khaki pants take 24 minutes on the cutting machine and have a contribution margin per pair of pants of $32. If it is assumed that Rough Stuff has 4,800 hours available on the cutting machine to service a minimum demand for each product of 3,000 units, how much will profits increase if 100 more hours of machine time can be obtained?

Answer 1

Answer:

$8,000

Explanation:

                                                    khaki shorts           khaki pants

machine minutes per unit                    15                         24

contribution margin per unit               $16                       $32

CM per machine minute                  $1.067                   $1.33

minimum demand                            3,000                   3,000

machine minutes required              45,000                72,000

total machine minutes available               288,000

total machine minutes remaining               171,000

production                                             0                       7,125

total production                                3,000                   10,125

total contribution margin               $48,000               $324,000

if 100 more machines hours are added, then production time increases by 6,000 minutes which can be used to produce 250 more khaki pants. Contribution margin will increase by 250 x $32 = $8,000

I calculated contribution margin per minute, but you could also calculate contribution margin per hour to determine which product is more profitable.  Contribution margin per hour for shorts = $64, and for pants = $80. The answer will not change.