Question

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. Assume that a maximum of 40,000 units of each sweatshirt can be sold. Required: 1. What is the contribution margin per hour of machine time for each type of sweatshirt

Answer 1

Answer:

Comfy Fit Company

Contribution margin per hour of machine time:

Contribution margin for 1 hour of machine time will be equal to:

Swoop = $5 x 60/6 = $50 per hour

Rufus = $15 x 60/6 = $150 per hour

Explanation:

If Contribution margin:

Swoop = $5 for 6 minutes' machine time

Rufus = $15 for 6 minutes' machine time

Therefore, contribution margin per hour will be

Contribution x 60/6.

Since 60 minutes make an hour, there will be ten times more contribution for each.

This gives an hourly contribution of $50 ($5 x 10) and $150 ($15 x 10).