Grady Enterprises manufactures three computer games. They are called Rising Star
ID: 2352057 • Letter: G
Question
Grady Enterprises manufactures three computer games. They are called Rising Star, Ghost Master, and Road Warrior. The product line data are as follows:
Rising Star:
Current unit sales demand: 20,000
Machine Hours Per Unit: 2.0
Selling Price per unit: $24.00
Unit Variable manufacturing costs: $12.50
Unit Variable selling costs: $6.50
Ghost Master
Current unit sales demand: 30,000
Machine Hours Per Unit: 1.0
Selling Price per unit: $18.00
Unit Variable manufacturing costs: $10.00
Unit Variable selling costs: $5.00
Road Warrior:
Current unit sales demand: 18,000
Machine Hours Per Unit: 2.5
Selling Price per unit: $32.00
Unit Variable manufacturing costs: $18.75
Unit Variable selling costs: $6.25
The current production capacity is 100,000 machine hours.
1. Which computer game should be manufactured first?
2. How many of each type of computer game should be manufactured and sold to maximize the company's contribution margin based on the current production activity of 100,000 machine hours? What is the total contribution margin for that combination?
Explanation / Answer
For rising star, (24 - 12.50 - 6.50)/2 = $2.50 contribution margin per machine hour For Ghost master, (18 - 10 - 5)/1 = $3.00 contribution margin per machine hour For road warrior, (32 - 18.75 - 6.25)/2.5 = $2.80 contribution margin per hour 1. 1st - Ghost master, 2nd road warrior, 3rd rising star. 2. make as much Ghost that will sell, then Road, then however many machine hours are left allocate to making rising. 30,000 units of Ghost Master: 30,000 hours (30,000*1) and $90,000 (30,000 * 3) 18,000 units of Road Warrior:45,000 hours (18,000*2.5) and $50,400 (18,000 * 2.8) 17,500 units of Rising Star:35,000 hours (17,500*2) and $43,750 (17,500 * 2.5) Total hours - 110,000 Total Contribution margin 90,000 + 50,400 + 43,750 = 184,150
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