Tutorial 4

Problem 1:
Power Corp. makes 2 products: blades for table saws and blades for handsaws. Each product
passes through the sharpening machine area, which is the chief constraint during production.
Handsaw blades take 15 minutes on the sharpening machine and have a contribution margin per
blade of $23. Table saw blades take 20 minutes on the sharpening machine and have a
contribution margin per blade of $35. If it is assumed that Power Corp. has 5,000 hours available
on the sharpening machine to service a minimum demand for each product of 4,000 units, how
much should be produced if 200 more hours of machine time can be obtained?

Answer:

Contribution margin per minute:

Handsaw blades: $23 * 4 = $92 CM per hour

Table saw blades: $35 *3 = $105 CM per hour

Produce the minimum for handsaw, 4,000 units, which uses 1,000 machine hours, the remaining
4,200 hours should be used to produce table saw to make 12,600 units.

Problem 2:

Kayaks-For-Fun produces two kayak models, River and Sea. Based on the information shown,
Kayaks-For-Fun would prefer to sell more of the River model because it has the highest contribution
margin per unit. Kayaks-For-Fun has a total of 320 labor hours available each month. The specialized
skills required to build the kayaks makes it difficult for management to find additional workers.
Assume the River model requires 4 labor hours per unit and the Sea model requires 1 labor hour per
unit (most of the variable cost for the Sea model is related to expensive materials required for
production). Kayaks-For-Fun sells everything it produces. Given its labor hours constraint, the
company would prefer to maximize the contribution margin per labor hour.

Required:
1. What is the contribution margin per hour of painting department time for each product?
2. What is the optimal mix of products?
3. What is the total contribution margin earned for the optimal mix?
Answer:

Based on this information, Kayaks-For-Fun would prefer to sell the Sea model because it
provides a contribution margin per labor hour of $150 versus $100 for the River model. The
company would prefer only to make the Sea model, which would yield a total contribution
margin of $48,000 (= $150 × 320 hours). If the River model were the only model produced, the
total contribution margin to the company would be $32,000 (= $100 × 320 hours).

Problem 3:

Sports Buffs makes basketballs and footballs in a three-step process. Unfortunately, the stem
insertion process has been identified as a bottleneck. Each basketball has a contribution margin of
$15.00 and each football has a contribution margin of $4.00. The stem insertion equipment can
make 10 basketballs or 30 footballs in one hour.

A. If demand for both products is unlimited and the stem insertion machine capacity cannot
be expanded, which product should be produced?
B. If demand for each ball is limited to 30,000 balls and there are 4,000 hours available on
the machine, how many of each product should be produced? C. How does this change
if the demand for each is 40,000?

Answer:
For basketballs:
Contribution margin per hour = =15.00x10basketballs=150.00

For footballs:
Contribution margin per hour = 4.00x30footballs=120.00

Therefore, in this scenario, it is recommended to produce 30,000 basketballs and 30,000 footballs
to meet the limited demand and utilize the available machine hours efficiently

If it is increased to 40,000 that all machine hours will be dedicated to basketballs and producing
no footballs.
Problem 4:

Wood World, Inc., produces wooden desks, chairs, and bookcases. These items are produced
using the same machines, and there is a maximum of 80,000 machine-hours available during the
year. The information about the production time and costs for these three items is:

**Note that VOH for bookcases should be 42 not 45!

Wood World is limited in producing its products by the number of possible machine-hours.
Orders have been received for 60,000 desks, 48,000 chairs, and 40,000 bookcases, which will
require 94,000 machine-hours to produce. Since there are not enough machine-hours available to
fill all of the orders, which orders should Wood World fill first?

Answer: