Reference no: EM132858284

Question - Jen Ellis, the Vermont second grade teacher behind Bernie Sanders' mittens, manufactures hats and gloves. Recently Jen purchased a new machine to aid in producing the hat product lines. Production efficiency on the new machine increases with the workforce experience. It has been shown that as cumulative output on the new machine increases, average labor time per unit decreases up to the production of at least 3,200 units. As Jen's cumulative output doubles from a base of 100 units produced, the average labor time per unit declines by a learning rate of 80%. Jen has developed a new style of men's hat to be produced on the new machine. One hundred of these hats can be produced in a total of 40 labor hours. All other direct costs to produce each hat are $12 per hat, excluding direct labor cost. Direct labor cost per hour is $25. Fixed production costs are $8,000 per month, and Jen has the capacity to produce 3,200 hats per month.

1) Jen plans to set the selling price for the new men's hat at 200% of variable production cost. If the forecast sales volume is 100 hats, what is the selling price?

2) If the plan is to sell 800 hats, what should be the selling price?

3) Compute the unit contribution margin in both 1) and 2)

4) Determine the monthly Gross Margin and the Gross Margin Ratio in both 1) and 2).

5) What is the amount of Gross Margin that Jen can achieve if she maxes out the monthly production capacity?