Question

Soap Company manufactures soap X and soap Y and can sell all it can make of either. Hours available to produce the products are the constrained resources. Based on the following data, if Soap could reduce the processing time for X by 10 percent, which of the following statements is true?
X Y
Sales Price $20 $25
Variable Cost 14 15
Hours needed to process 3 5
A. It would take 162 minutes to process one unit of X.
B. There would be no difference in the contribution margin per hour as compared to it before the processing time reduction.
C. The contribution margin per hour for X would be $2.
D. Soap Y would still be the most profitable.

Answer 1

Answer:

It would take 162 minutes to make one unit of product X.

Explanation:

Giving the following information:

Hours available to produce the products are the constrained resources.

Soap could reduce the processing time for X by 10 percent.

X Y

Sales Price $20 $25

Variable Cost 14 15

Hours needed to process 3 5

First, we need to determine the number of minutes required to make one unit of Product X under the new method:

Number of minutes required= (3*60)*0.9= 162 minutes.

It would take 162 minutes to make one unit of product X.

B) False. The contribution margin per hour of Product B is higher than product Y.

C) False. The contribution margin per hour of $2 was before the improvement in product X.

D) False. Product Y has a higher contribution margin per unit but lower compared to the contribution margin per hour.