Question
Elegant Furniture manufactures standard and deluxe sofas. The standard sofa is sold at $400 each, and the deluxe sofa is sold at $700 each. The
Elegant Furniture manufactures standard and deluxe sofas. The standard sofa is sold at $400 each, and the deluxe sofa is sold at $700 each. The variable cost of making the standard sofa is $250 each. It costs an extra $150 to make the deluxe sofa. It takes 40 labor hours to make 100 standard sofas and 60 labor hours to make 100 deluxe sofas. There are 3,200 hours of labor time available for production each week. The maximum weekly sales for the standard and deluxe sofas are 300 and 150 units, respectively. Fixed production costs total $800,000 per year. All selling costs are fixed.
Required: (a) Calculate the optimal production level in number of units for each product. (b) Prepare an income statement for the company based on the optimal production level. (c) Determine the break-even point in units for each type of sofa.
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