how to find out 20.7(b)?

This is not as simple as just roducts utilise the limited resources. for uPose th ds, deciding which orders to fill and dve profits per unit; it involves considering how king comparing gers need to know which product is the most e that Sydney Sailing Supplies for yachts: cleats and shackles. The contribution margin the Trade hAccessories Plant manufactures and sells two margin for each of these products is ed in Exhibit 20.6. ed Visy's n margin per unit, Sydney Sailing Supplies Exhibit 20.6 Shackles Variable costs: Direct material Direct labour Variable overhead m Visy riod of $14.00 e two s 3.75 s 300 2.00 3.00 2.50 3.75 2.00 12.00 2.00 and administrative costs variable selling Total variable costs margin per unit 9.00 uld rtel glance at the A ontribute more towards covering the company'sfi contribution margin data suggests that shackles are more profitable than are cleats. that aportant consideration has been ignote& the company's fixed cost and profit than cleats. However, an far. The plant's capacity is limited by its tion has been ignored in the analysis so adable machine time. Only 700 machine hours are available in the plant each mont smplies can sell as many cleats and shackles as it can produce, so production is limit onstraint of machine time. h. Sydney Sailing. To maximise the plant's total profits, management should strive to use each machine hour as profitably question is not which component has the highest ble. This realisation alters the analysis of product profitability. The relevant q ponent has the highest contribution margin per unit, but which ontribution margin per machine hour. This question is answered with the calculation in Exhibit 20.7 Contribution margin per machine hour, Sydney Sailing Supplies Exhibi 20.7 Contribution margin per unit Machine hours required per unit Contribution margin per machine hour Cleats $ 1.00 0.02 $50.00 Shackles 5 2.00 0.05 $40.00 (a)+(b) A machine hour spent in the production of cleats will contribute $50 towards covering fixed cost and while a machine hour devoted to shackles contributes only $40. Hence, the company's most profit, profitable product is cleats, when the plant's scarce resource is taken into account. Suppose that the plant manager, Roger Sutch, is faced with a choice between two sales orders, one for deats and one for shackles, of which only one can be accepted. Only 80 hours of unscheduled machine ime remains in the month, and it can be used to produce either cleats or shackles. The relative profits ebtained from producing either cleats or shackles can be calculated Cleats 550.00 $ 4000 Shackles $40.00 $ 3200 margin per machine hour etcontribution from 80 machine hours