Self$-$Study Problem

Self$-$Study Problem

Marcia's Millinery makes women's hats. The company has a workshop in the Toronto garment district. The capacity of the workshop is $1,500$ hats per week. Each hat uses $$6$ of materials and takes $40$ minutes to make. The cutters and machinists earn $$15$ per hour. The fixed expenses total $$6,000$ per week. The hats are sold to retailers for $$30$ each, and the retailers sell them to customers for $$50$ each. In recent months, Marcia's has sold $1,000$ hats per week.

Canadian Tire has decided that it wants to sell women's hats as well as its existing line of hardware products. They have asked Marcia's Millinery to supply $400$ hats per week every week for the next year at a price of $$20.$

Required

$($a$)$ What are the variable costs per hat, the fixed costs per week, the full cost per hat, the profit per hat, and the contribution margin per hat for Marcia's Millinery's existing trade?

$($b$)$ Should Marcia's accept the offer from Canadian Tire?

$($c$)$ If Canadian Tire wanted Marcia's Millinery to sell it $1,500$ hats per week, what price per hat would be necessary so that Marcia would make the same profit as before?

$($d$)$ If the capacity of Marcia's workshop was $1,000$ hats instead of $1,500$ hats, how would this affect the decision to accept Canadian Tire's offer of $400$ hats at $$20?$

$($e$)$ What are the qualitative factors in this decision?