The Stratford Elite Manufacturing Company cuts and sews insulated curtains. The facility has two workstations to permit managers to cut and finish the product. The manager reported that the cutting station must wait to receive fabric because they wait for the cut fabric from the workers at the cutting machine. The manger determined that the finishing workstation is constrained by the speed of production by the workers at the cutting workstation, based on an eight-hour day.
To eliminate the bottleneck constraint, the employees at the finishing workstation could begin the cutting process two hours earlier each day, compared to the workers at the cutting workstation, because they each complete their work at the same time. The manager realized that this eliminates the bottleneck constraint, but it also increases the amount of finished units produced each day by 175 units. All of the units produced can be sold even though the change resulted in an increase in the inventory stock by 25%, up from 425 units.
The managerial accountant reported that the cost of operating the cutting department an additional two hours each day is $1,750 and the contribution margin of the finished products are $7 each. The inventory carrying costs are $.50 per unit, per day.
Required:
Compute the total production per day in units if the workers at the Finishing workstation work an additional two hours each day at Stratford Elite Manufacturing. What is the net change in the contribution margin if the manager at Stratford Elite Manufacturing makes the change?
A) 675 units; $3,008.25
B) 700 units; $3,012.75
C) 750 units; $3,016.45
D) 875 units; $3,018.75
E) 925 units; $3,022.65
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