Operational information Part 6 Utilizing a constrained resource

Due to the world-wide pandemic (COVID19), Dynamadics has been struggling to secure a reliable source for the high-quality leather required to produce its designer womens shoes. Additionally, in some regional operations, employees have been unable to work due to illness or quarantine protocols. Thankfully, no employees have become critically ill as a result of COVID19.

The selling price, variable costs and contribution margin for each of three specific types of shoes and additional operational information is presented below:

		Product
	Runway	Princess	Comfort
Selling Price	$152.00	$215.00	$210.00
Less: Variable costs
Direct materials	28.00	111.00	83.00
Direct labour	16.20	16.20	16.20
Other variable overhead	76.20	37.00	70.50
Total variable costs	120.40	164.20	169.70
Contribution margin	$31.60	$50.80	$40.30

• The high quality leather that is in short supply is used to produce all three types of shoes.
• Dynamadics has only 12,000 kilograms of the leather on hand and is unable to secure any additional leather for a number of weeks.
• Direct labour costs are $26.00 per hour.
• Leather costs $4 per kilogram

The owners have asked managers to determine which type of shoes to focus on to meet existing customer demands given the current operational constraints. To provide a response, to the owners, the managers have asked you to provide analysis as outlined below. Assume that the leather and direct labour constraints are independent of each other and analyze each constrained resource separately.

Requirement #6 (10 marks)

Considering the leather supply problem:

1. What is the contribution margin per kilogram of leather for each type of shoe?
2. Which shoe type should Dynamadics produce? Provide an explanation to the managers to support their understanding of your analysis and your recommendation.

Considering the direct labour supply problem:

3. What is the contribution margin per direct labour hour for each type of shoe?
4. Which shoe type should Dynamadics produce? Provide an explanation to the managers to support their understanding of your analysis and your recommendation.

Note: use 2 decimal places in presenting your results.