1. Charlie\'s Chairs manufactures two models, Standard and Premium. Weekly deman
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Question
1. Charlie's Chairs manufactures two models, Standard and Premium. Weekly demand is estimated to be 120 units ol the Standard Model and 70 units of the Premium Model. Only 420 machine hours are available per week. The following per unit data apply tandard S12 Premium $15 Contribution margin per unit Number ol muchine hours required Required: u. For each model, compute the contribution margin per machine hour. b. To maximizc woekly produetion prolits, how many machine hours would you recommend of cuch model? How many units ol cach model? c. If there are 500 machine hours available per week (instead of only 420 machine hours per woek), how many chairs of cach model should Churlic's producc to maximize prolits? 2. Nanny McPhcc, the owner and manager of Nanny's Roasted Chicken Company, replaced tho company's convection ovens just six months ago. Today. Green Valley Oven Munulucturing announced the availability of a new convection oven that cooks much more quickly with lower opcrating cxpenses. Nanny is considering the purchase of this fastcr, lower-operaling cost, convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below: Existinsg Oven Original cost Accumulated 120,000$100,000 arion S 10,000 urrent salvage valuc emaining life Annual operating S20,00D $15400 Disposal value in 10 Required a. What costs are sunk? b. What costs are relevant? c. What are the net cash flows over tlie next 10 years assuming that Nanny purchases the new convection oven? d What other factors should Nanny consider when making this decision?Explanation / Answer
Solution 1a:
Solution 1b:
As contribution margin per machine hour is higher for standard model, therefore machine hours first utilized to produce standard chairs then for premium chairs.
Machine hours for standard model = 120 * 2 = 240 hours
Machine hours for premium model = 420 - 240 = 180 hours
Nos of units for standard model = 120 units
Nos of units for premium model = 180/3 = 60 units
Solution c:
Total weekly machine hours required to meet weekly demand = 120*2 + 70*3 = 450 machine hours
If 500 machines hours are available, then company is having sufficent hours to meet the weekly demand, therefore company should produce 120 units for standard chairs and 70 units of premium chairs weekly.
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Computation of contribution margin per machine hour Particualrs Standard Premium Contribution margin per unit $12.00 $15.00 nos of machine hours per unit 2 3 Contribution margin per machine hour $6.00 $5.00Related Questions
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