Throughput contribution. Stay Warm, Inc., produces extreme-weather parkas in three operations — cutting, assembling, and finishing. The parkas sell for $120 each.

Stay Warm's managers find it has a cutting bottleneck due to limited layout space.

Pertinent information per month follows:

Each parka has variable costs of $65. Stay Warm's output is constrained by the 13,440 units of cutting capacity. Only one option exists that can relieve the bottleneck at t he cutting operation. Consider the differential costs associated with the following option to determine the impact on throughput.

Stay Warm can increase bottleneck output by renting additional space for the cutting operation, increasing the monthly cutting capacity to 15,000. The additional cost of renting space and hiring additional cutters is $60,000.
Should Stay Warm go ahead with this option? Why or why not?

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Hourly Capacity Monthly Capacity (168 hours). Actual Monthly Production Fixed Operating Costs per Month Cutting Assembly Finishing 150 Units 80 Units 100 Units 13,440 Units 16.800 Units 25,200 Units 13,440 Units 13,440 Units 13,440 Units $11,200 $15,500 $12,000