Sandy Company manufactures three models of office chairs: economy, basic and del

ID: 2514608 • Letter: S

Question

Sandy Company manufactures three models of office chairs: economy, basic and deluxe.

Product information is provided below.
All per unit amounts are based on estimated of 5,000 units of each item produced and sold.

Fixed manufacturing costs of $120,000 were allocated based on direct labor hours. The costs are unavoidable.

If Sandy has excess capacity, and there is unsatisfied demand for all three products, which model should they produce?

economy

basic

deluxe

Economy Basic Deluxe Sales price (per unit) $150 $210 $320 Variable selling costs (per unit) $30 $30 $30 Variable manufacturing costs (per unit) $40 $80 $200 Fixed manufacturing costs** (per unit) $20 $45 $70 Net income per unit (computed from amounts above) $60 $55 $20

Explanation / Answer

Answer

Working

Economy

Basic

Deluxe

Sales price (per unit)

$ 150.00

$ 210.00

$ 320.00

Variable selling costs (per unit)

$ 30.00

Variable manufacturing costs (per unit)

$ 40.00

$ 80.00

$ 200.00

D=A-B-C

Contribution margin per unit

$ 80.00

$ 100.00

$ 90.00