Question 1: Maggie’s Mufflers manufactures three different product lines, Model X, Model Y and Model Z. Considerable market demand exists for all models. The following per unit data apply:
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MODEL X
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MODEL Y
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MODEL Z
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Selling Price
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$80
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$90
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$100
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Direct Materials
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$30
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$30
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$30
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Direct Labor ($10/hour)
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$15
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$15
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$20
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Variable Support Costs ($5 per machine hour)
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$5
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$10
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$10
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Fixed Support Costs
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$20
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$20
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$20
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a. For each model, compute the contribution per unit
b. For each model, compute the contribution per machine hour.
c. If there is excess capacity, which model is the most profitable to produce? Why?
d. If there is a machine breakdown, which model is the most profitable to produce? Why?
e. How can Maggie encourage her sales people to promote the more profitable model?
Question 2: Charlie’s Chairs manufactures two models, Standard and Premium. Weekly demand is estimated to be 120 units of the Standard Model and 70 units of the Premium Model. Only 420 machine hours are available per week. The following per unit data apply.
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STANDARD
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PREMIUM
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Contribution margin per unit
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$12
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$15
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Number of machine hours required
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2
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3
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a. For each model, compute the contribution per machine hour.
b. To maximize weekly production profits, how many machine hours would you recommend for each model? How many units of each model?
c. If there are 500 machine hours available per week (instead of only 420 machine hours per week), how many chairs of each model should Charlie’s produce to maximize profits?