Chapter 11, Problem 11.35P

Short-run pricing, capacity constraints. Fashion Fabrics makes pants from a special material. The fabric is special because of the way it fits many body types. The pants sell for $142. A well-known retail establishment has asked Fashion Fabrics to produce 3,000 shorts from the same fabric. The factory has unused capacity, so Barbara Brooks, the owner of Fashion Fabrics, calculates the cost of making a pair of shorts from the fabric. Costs for the pants and shorts are as follows:

	Pants	Shorts
Fabric (6 yds. × $12; 3 yds. × $12)	$ 72	36
Variable direct manufacturing labor	20	10
Variable manufacturing overhead	8	4
Fixed manufacturing cost allocated	15	9
Total manufacturing cost	$115	$59

1. 1. Suppose Fashion Fabrics can acquire all the fabric that it needs. What is the minimum price the company should charge for the shorts?
2. 2. Now suppose that the fabric is in short supply. Every yard of fabric Fashion Fabrics uses to make shorts will reduce the pants that it can make and sell. What is the minimum price the company should charge for the shorts?