Netty is trying to decide what her niche product should be for her business, Handknit by Netty. She is considering two products, socks and sweaters. A pair of socks take on average 5 hours to knit. Sweaters take on average 15 hours to knit. The socks sell for $25 each and have a variable cost of $5. The sweaters sell for $95 and have a variable cost of $35. Netty has 1,000 hours available to knit. Which product should she produce and why

Solution :

The contribution margin per hour :

Particulars                  Socks             Sweaters

Selling price                 25                      95

Variable cost                 5                       35

Contribution margin    20                       60

Hours per unit              5                         15

CM per hour                 4                          4

From here, we see that the contribution margin per unit of the resources are same for the two products. So Netty can produce either one of the product, i.e. either sweater or socks.          

Either one because the two products

Explanation:

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