Question

Mountain Goat Cycles also makes saddle bags for its bicycles. There are two types, the Mountain bag and the Touring bag.

Mountain Touring

Selling price per unit $25 $30

Variable cost per unit $10 $18

Contribution Margin per unit $15 $12

Contribution Margin ratio 60% 40%

At Mountain Goat, the stitching machine is the constrained resource (or bottleneck). Additional information is as follows:

• The stitching machine has a capacity of 2400 minutes per week.

• The Mountain bag requires 1 minute of stitching time

• The Touring bag requires ½ minute of stitching time

• Current demand for the Mountain bag is 2000 units per week

• Current demand for the Touring bag is 2400 units per week.

Based on the above information, how many units of each bag should be produced to utilize the constrained resource to its fullest and get the most money for the company?

Struggling with the step process

Answer 1

ANSWER

	Statement of contribution
		Mountain	Touring
	Selling Price	$                                    25	$                                    30
	Less: Variable Cost	$                                    10	$                                    18
	Contribution margin per Unit	$                                    15	$                                    12
	Time taken to stich each unit	1 min	1/2 min
	Contribution margin per minute	$                                    15	$                                    24
		($15 / 1 min)	($12/ 0.5 min)
	Ranking	II	I
	Since contribution margin per minute of stitching machine time is more in case of touring bag, it would be produced first and than mountain bags should be produced with the remaining time to achieve maximum profit,
	Statement of product mix
		Number of Unit	Time Taken (min)
	Touring bags	2,400	1,200
	Mountain bags	1,200	1,200
			2,400
	Therefore, 2,400 units of touring bags and 1,200 units of mountaining bags should be produced be produced to utilize the constrained resource to its fullest and get the most money for the company.
	Note:
		Per week
	Capacity per week	2400 min
	Time taken to produce touring bags	1200 min	(2400 units / 0.5 min)
	Time left	1200 min
	Units of mountain bags that can be produced with available time	1200	(1200 min / 1 min

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