Question 14. Soap Company manufactures Soap X and Soap Y and can sell all it can

Question

Question 14.
Soap Company manufactures Soap X and Soap Y and can sell all it can make of either. Based on the following data, if Soap could reduce the processing time for X by 10%, which of the following statements is true?
X Y
Sales Price $20 $25
Variable Costs 14 15
Hrs needed to process 3 5
A. There would be no difference in the contribution margin per hour as compared to it before the processing time reduction.
B. It would take 162 minutes to process one unit of X.
C. The contribution margin per hour for X would be $2.
D. Soap Y would still be the most profitable.

Explanation / Answer

processing time for soap X gets reduced from 3 to 2.7 Lets evaluate the statements... A. contribution margin per hour = (sales price - variable cost)/processing time for X before processing time reduction, CM/hr = 6/3 = 2 for X after processing time reduction, CM/hr = 6/2.7 = 2.2222 hence, FALSE B. it would take 2.7 hrs i.e 162 minutes... hence, TRUE C. It was $2 before the reduction in processing time(as calculated earlier) and hence wont be $2 after that hence, FALSE D. Contribution margin of soap Y/hr would be $2 so it wont be most profitable after the reduction in processing time of X hence, FALSE

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