Chad Davis, vice president for operations at C&C Sports, is considering different strategies for managing the company’s inventory. Earlier in the year, the company implemented a more systematic production schedule so that at the end of each month Finished Goods Inventory is 25% of the next month’s anticipated sales. That strategy freed a lot of inventory space and improved the company’s cash flow.
However, Chad noticed that because of the seasonal nature of the purchases of all of the products, especially award jackets (see Exhibit 5-5), the need for direct labor hours fluctuated widely from one month to the next (see Exhibit 5-13). Even though Chad is able to hire workers as needed, he is concerned that eventually he won’t be able to fi nd skilled workers unless they are promised a more consistent schedule. For C&C Sports, labor and sewing machines are constrained resources. The company can produce as many of their products as they have people to make them.
Chad gathered the following unit sales and cost information about each product.

Claire Elliot, vice president for finance and administration, reminded him that a commission of 5% of the sales price and shipping costs of $0.40 per item should also be considered when analyzing different strategies.

a. Calculate the contribution margin per unit for each product.
b. Calculate the contribution margin per direct labor hour for each product.
c. If demand wasn’t an issue, what preference order should be given to producing each of the products? Be sure to consider what you learned in Chapter 7 about how jackets consume activities.
d. If the sales mix continues as budgeted in 2014—200,000 pants, 70,000 jerseys, and 18,000 jackets—how many direct labor hours will be needed to produce these units?
If C&C Sports chose to spread out production evenly throughout the year, how many direct labor hours would be required each week, assuming the company operates all 52 weeks per year?
e. How many employees would be needed if operations ran two 8-hour shifts per day, 5 days per week (round up to the nearest whole number)? How many sewing machines would be needed?
f. Assume that the sales team is able to increase jersey sales to 73,500 per year. What is the impact on total contribution margin if jerseys are made instead of pants? Instead of jackets? Would it be worthwhile to try to hire additionalworkers?

  • CreatedFebruary 21, 2014
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