2 QUESTIONS FOR THIS PROBLEM!!

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

Product information is provided below.

Economy(E) Basic (B) Deluxe (D)

Unit selling price........................................................ $150(E) $210 (B) $320 (D)

Unit manufacturing costs:

Variable................................................................ -$40 (E) -$80 (B) -$200 (D)

Fixed.................................................................... -$20 (E) -$45 (B) -$70 (D)

Unit Variable selling costs..........................................-$30 (E) -$30 (B) -$30 (D)

Net income per unit(computed from amounts above) $60 (E) $55 (B) $20 (D)

Machine-hours per unit............................................... 40 mhrs (E)40 mhrs (B) 30 mhrs (D)

Fixed manufacturing costs of $30,000 are assigned based on direct labor hours. The costs are unavoidable.

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

produce?

a. economy

b. basic

c. deluxe

2.If Sandy only has 6,000 machine hours available after filling all of the existing orders, which model should it produce

with the remaining capacity? (Assume unlimited demand again.)

a. economy

b. basic

c. deluxe