Answer:
1. Swoop = $50
Rufus = $45
2. Optima mix = 40, 000 units of Swoop and 9, 091 units of Rufus
3. $336, 365
Explanation:
We will assume that a maximum of 40, 000 units of each sweat shirts can be sold.
1. Contribution margin is the selling price minus all the variable costs associated with the product. The total contribution margin represents the amount of earnings that are available to pay for fixed costs after paying for variable costs.
Swoop Rufus
Contribution per margin $ 5 $ 15
Required machine time per unit^ 0.10 0.33
Contribution margin per machine time $50 $45
^ 0.10 = 6 minutes per Swoop units / 60 minutes
0.33 = 20 minutes per Rufus unit / 60 minutes
2. Optimal product mix refers to the variety of products that a business offers to its customers. Companies determine their optimal mix for their business as this optimizes the potential unit sales while maintaining or improving the company’s profitability.
Since Swoop yields the highest contribution margin per hour of machine time [$50], we will prioritize producing all pf the Swoop T-shirts that the market can take, i.e. to meet the demand.
Machine time required for the maximum amount of Swoop = 40, 000 x 0.1 hours = 4, 000 hours needed to manufacture the Swoop t-shirts.
The remaining machine hours will manufacture the Rufus T-shirts.
7, 000 – 4, 000 = 3, 000 hours.
3, 000 / 0.33 = 9, 091 units.
Therefore, the optimal mix is 40, 000 units of Swoop sweat shirts and 9, 091 units of Rufus sweat shirts. This will take up all the machine hours available.
3. Total contribution margin for the optima mix = (40, 000 x $5) + (9, 091 x $15) = $336, 365
