Managerial Accounting

Example of the Theom of Constraints Pigskin, Inc. manufactures two types of leather balls: footballs and soccer balls. The balls are manufactured on a stitching machine and no variable costs are incurred in operating the machine. Currently, the only variable costs are for materials. The company has produced the following data: Description Cost of Materials Selling Price Minutes of Machine Processin. FOOTBALL $10 per unit SOCCER BALL At full capacity, the machine can operate for only 20 hours per day. Required: 1. Calculate the contribution margin per minute ofthe constraining resource for each product. 2. Assuming that Pigskin has unlimited demand for both of its products, what is the maximum daily contribution margin the company can earn? Assuming that Pigskin's estimated customer demand is 1,000 units for footballs and 700 units for soccer balls, what is the maximum daily contribution margin the company can earn when operating the machine at full capacity? 4. A local sailmaker has a similar machine and is willing to rent it to Pigskin at an agreed cost per minute of usage. Assuming Pigskin's estimated daily demand is 1,000 units for footballs and 700 units for soccer balls and that the company has used its 1,200 machine processing minutes in an optimal fashion, what is the highest price Pigskin Company should be willing to pay for an additional minute of machine time? For the Solution, page down