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Delvig [45]
3 years ago
6

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 30 minutes of machine time.
Assume that a maximum of 40,000 units of each sweatshirt can be sold.

Required:
a. What is the contribution margin per hour of machine time for the Swoop sweatshirts?
b. What is the contribution margin per hour of machine time for the Rufus sweatshirts?
c. What is the optimal mix of sweatshirts?
d. What is the total contribution margin earned for the optimal mix?
Business
1 answer:
Contact [7]3 years ago
8 0

Answer:

Comfy Fit Company

a. The contribution margin per hour of machine time for the Swoop is:

= $50.

b. The contribution margin per hour of machine time for the Rufus sweatshirts is:

= $30.

c. The optimal mix of sweatshirts that maximizes profitability is 40,000 Swoop sweatshirts and 6,000 Rufus sweatshirts.

d. The total contribution margin earned for the optimal mix is:

= $2,180,000.

Explanation:

a) Data and Calculations:

Machine hours available = 7,000 hours (1,000 * 7)

                                                  Swoop       Rufus

Contribution margins                   $5           $15

Time required per unit                   6 min      30 min

Time required per unit in hours   0.10 hr     0.5 hrs

Contribution per hour                 $50          $30

Optimal product mix is to produce all of Swoop's 40,000 units first and then to use the remaining machine hours (3,000) to produce Rufus sweatshirts.

This will take 4,000 hours (40,000 * 0.10)

This leaves 3,000 hours for Rufus (7,000 - 4,000)

This means that only 6,000 (3,000/0.5) of Rufus can be produced

The total contribution margin for the optimal mix:

= ($50 * 40,000) + ($30 * 6,000)

= $2,000,000 + 180,000

= $2,180,000

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Answer: Please see explanation column for answer

Explanation:

Recasting  the income statement to emphasize contribution margin.

Juicy Beauty Operating Income Statement, June 2017

Units sold                                                            20,000

Revenues                                                         $200,000

Variable costs(subtract):

Variable manufacturing costs    $110,000

Variable marketing costs             $10,000

Total variable costs                                                 $120,000  

Contribution margin                                                   $80,000

Fixed costs

fixed manufacturing costs                         40,000

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Working  for income statement above =

Contribution margin = Revenue -Total  variable cost =$200,000- ($110,000 + $10,000) - $80,000

Operating income= Contribution margin - Total fixed cost = $80,000 - $($40,000 +$20,000) -=$20,000

2  The contribution margin percentage and breakeven point in units and revenues for June 2017.

Contribution margin percentage = ,Contribution margin/ Revenue x 100%

= $80,000/ $200,000 x 100= 40 %

Contribution margin per unit = ,Contribution margin/ units sold

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Break  even point units  = Total fixed cost/ ,Contribution margin per unit

 = $60,000/ $4=  15,000units

Break even revenue=

we first calculate the selling price = Revenue / units sold = $200,000/ 20,000 =$10

Break even revenue=Break even units x per unit sold = $15,000 x $10 = $150,000.

3. Margin of safety = units sold - break even point unit

20,000 - 15,000 =5000 units

4. If the sales is 16,000 and tax is 30% , Net income is

Units sold                     16,000

Revenue                     $160,000

Contribution margin    $64,000

Total fixed cost           - $60,000

Operation income       $4,000

tax at 30 %                  - $ 1200

Net income                 $2,800

working

Revenue = units sold x sale per unit = 16,000 x $10 = $160,000

Contribution margin = Revenue x contribution margin percentage = $160,000 x 40% = $64,000

Operation income = contribution margin - fixed costs= $64,000 - $60,000 = $4000

Tax = 30% of 4000 = $1200

Net income = $4000 - $1200 = $2,800

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