CHAPTER 10 SPECIAL OPERATING DECISIONS 480 16. Optimization of scarce resources. Steven Company has been producing component parts and assemblies for use in the manufacture of microcomputers. The company plans the near future. to introduce a magnetic tape-cartridge-backup for IBM-compatible microcomputers in Steven's Research and Development (R&D) and Market Research departments have been working on this project for an extended period. The development costs of the two departments incurred to date amount to P1,500,000. R&D created several alternative designs for the backup units. Three of the designs were approved for development into prototypes, and from these only one will be manufactured and sold. Market Research had determined that the appropriate selling price would be P540 per unit, regardless of the model selected. There is uncertainty about demand. These alternative levels of demand are possible-light, moderate, and heavy. Steven can meet all demand levels because its production facility is currently operating below full capacity. Unit Level of demand Probability Sales of event Light 20,000 0.25 Moderate 80,000 0.60 Heavy 120,000 0.15 100 Variable manufacturing overhead is allocated to Stevens products using a plantwide rate of 250% of direct manufacturing labor costs. Steven's engineering and accounting staffs have worked together to develop manufacturing cost estimates for each of the three model designs. Model A Model B Model C Unit variable costs Direct materials P 150 P 100 P 114 Direct manufacturing labor 40 50 48 Manufacturing overhead 100 120 120 Marketing 140 140 140 Other costs Fixed manufacturing overhead P 1,000,000 P 1,400,000 P1,300,000 Fixed marketing costs 2,000,000 3,100,000 2,800,000 Development costs (already incurred) 1,500,000 1,500,000 1,500,000 Steven had decided for use an expected monetary value choice criterion in the analysis of which of the three prototypes it will manufacture and sell Required: 1 . Compute the unit contribution margin of Models A, B, and C. 2. Which prototype should Steven Company manufacture and sell? (cma) 17. Sell now or process further. Boracay Company manufactures three products from a common production process. Joint costs up to the split-off point total P400,000. The