Answer the following questions using the information below:
Kosciuszko Landscapes produces Landscape photographs for sale through catalogues.The company has two workstations: photo production and framing.The photo production station is limited by the speed of operating the photo development machine.Framing is limited by the speed of the employees.Framing normally waits for work from photo production.Each department works an eight-hour day.If Kosciuszko Landscapes adds an earlier half shift so that photo production begins work four hours earlier than framing each day,the two departments generally finish their work at about the same time.This eliminates the bottleneck,and increases finished units produced each day by 300 units.All units produced can be sold.The cost of operating the photo production department four more hours each day is $2800.The contribution margin of the finished products is $15 each.
-What is the change in the daily contribution margin if the change is made?
A)$800
B)$2800
C)$1700
D)$250

Question

Quizplus · Accepted Answer

The additional cost of operating the photo production department four more hours each day is $2800. Therefore, the additional contribution margin per day can be calculated as follows:

Additional units produced = 300 
Contribution margin per unit = $15 
Additional contribution margin per day = 300 x $15 = $4500

However, we must subtract the additional operating cost of $2800 from the additional contribution margin to determine the net increase in contribution margin:

Net increase in contribution margin = $4500 - $2800 = $1700

Therefore, the change in the daily contribution margin is $1700.

As for the best choice, the company should definitely implement the earlier half shift as it increases the finished units produced each day by 300 units and all units produced can be sold. This means that the additional operating cost of $2800 is more than offset by the increase in contribution margin of $1700. Therefore, it is a profitable decision for the company.

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