What if the company used all 3,500 machine hours to make basic t-shirts?

Each basic t-shirt requires 0.231 machine hours to make.

So, with 3,500 machine hours,

the company can make 15,152 basic t-shirts.

With each t-shirt's contribution margin being $3.59,

the total contribution margin with this alternate is $54,396.

Now alternatively, what if the company used all

3,500 machine hours to make the deluxe t-shirts?

Well, each deluxe t-shirt requires 0.345 machine hours to make.

So with the 3,500 machine hours,

the company can make 10,145 deluxe t-shirts.

With each shirt's contribution margin being $4.73, the total contribution

margin with this alternative is 47,986.

So the company would generate more contribution margin if it used the 3,500

machine hours to make basic t-shirts than if it used them to make deluxe t-shirts.

Even though the contribution margin for

one basic t-shirt is lower than that for one deluxe t-shirt.

Now, why is this the case?

Well, because the fact that basic t-shirts use less machine hours means that

the company can make more basic t-shirts than deluxe t-shirts with that

3,500 hours.

And that additional volume offsets the lower per unit

contribution margin on the basic t-shirts.

So the company would be better off devoting the constrained resource,

machine hours, to making basic t-shirts.

Now this all seems to make intuitive sense, right?

But recall that our original question was not whether to use all

3,500 machine hours to make basic t-shirts or deluxe t-shirts.

Indeed, we don't even have sufficient demand to use all those hours to make

the 15,000 basic t-shirts or the 10,000 deluxe t-shirts.

Our original question was how many machine hours should it

devote to making basic t-shirts?

And how many machine hours should it devote to making deluxe t-shirts?

Now based on the analysis we just did, it seems that, well, conceptually,

maybe the company should make enough basic t-shirts to meet the demand for

those shirts, since they seem to be the preferable way to use the machine hours.