Conservatory Lumber sells rough and finished lumber for building products. At one of the Company mills in the Northwest, it processes only one type of wood into two products: rough-cut lumber (sold for further processing) and dimensional lumber (for paneling and so on). The company has one particular cutting machine on which it can produce either of two types of lumber: rough-cut or dimensional. Sales demand for both products is such that the machine could operate at full capacity on either of the products. Regardless of what is produced, demand is such that Conservatory Lumber can sell all the output it produces at current prices. One unit of rough cut lumber requires 0.6 hours of machine time, and one unit of the dimensional lumber requires four hours of machine time. Each unit consists of 1,160 board-feet.

Following are the costs per unit for the lumber:

	Per Unit (1,160 board feet in a unit)
	Rough-Cut	Dimensional
Selling price	$ 3,480	$ 9,240
Costs
Materials	$ 1,392	$ 1,720
Labor	1,392	3,344
Cutting machine depreciationa	15	100
Other depreciation (fixed)b	35	232
Other factory costs (allocated)b	480	432
Total cost per unit	$ 3,314	$ 5,828
Gross margin per unit	$ 166	$ 3,412

^a This item is a variable cost because it is based on machine usage.

^b This item is a fixed cost because it is unaffected by the usage of the cutting machine.

All other costs are the same whether regardless of the production mix, so you may ignore them.

Required:

a-1. Calculate the contribution margin per hour of machine time for the two products with and without considering cutting machine depreciation as a variable cost.

a-2. Should Conservatory Lumber produce rough-cut or dimensional lumber, or both?

b. Suppose the machine usage time for the dimensional lumber is unknown. What machine usage (units per hour) for dimensional lumber would make Conservatory Lumber indifferent to what production mix was chosen?