The Cooklite Pan Company has two products: a standard skillet and a nonstick skillet. The plain skillet sells for $30 and has a variable cost of $20. The non-stick skillet sells for $50 and has a variable cost of $25. Currently, demand for Cooklite's skillets is extremely high; therefore, there is more demand for skillets than Cooklite can produce. There are only 30,000 machine hours of manufacturing capacity available. Three standard skillets can be produced in one hour, while one non-stick skillet takes one hour to produce. Both types of skillets use the same production line.
Compute contribution margins and contribution margin ratios for standard and non-stick skillets.
Compute the total contribution margin for 30,000 hours for standard skillets only and for non-stick skillets only.
Which product is the best use of machine hours? If Cooklite chose to focus on only one skillet line, which skillet should they choose and why?