Exercise 4.26

Julia developed an innovative computer game, called Home By Myself (HBM). It was so successful that she quickly followed up with two sequels: Home By Myself II (HBM2) and Home By Myself III (HBM3). The costs of developing the games were $100,000 for HBM, $6,000 for HBM2, and $14,500 for HBM3.

The production process consists of using her computer to copy the games to blank DVDs and then packing them with printed instructions in a display box. It takes longer to copy the original game than it takes to copy the sequels. Julia can produce, ready for shipping, about 20 copies of HBM, 30 copies of HBM2, or 45 copies of HBM3 in an hour, and she normally works 8 hours per day.

HBMHBM2HBM3Selling price$47.50$27.20$27.20CostsBlank DVD1.200.700.70Instructions and packaging4.102.102.10Prorated development costs*

20.00

1.20

2.90

Margin$

22.20

$

23.20

$

21.50

Daily demand120games120games90games

*The prorated development costs were determined for each game by dividing the game's development costs by 5,000, the estimated minimum total demand for each game.

What is the contribution margin per hour of Julia's time for each game?(Round all entries to 2 decimal places, e.g. 5.35.)

HBMHBM2HBM3Contribution margin per hour:$

$

$

In what order should Julia produce the games?

Production order:

HBM3, then HBM2, and then HBM

HBM, then HBM3, and then HBM2

HBM3, then HBM, and then HBM2

HBM2, then HBM, and then HBM3

HBM2, then HBM3, and then HBM

HBM, then HBM2, and then HBM3

Using the general decision rule for constrained capacity, what is the most Julia should be willing to pay per hour for a worker to duplicate and pack DVDs after her normal working hours? (Assume that the worker would work at the same pace as Julia.)(Round entry to 2 decimal places, e.g. 5.35.)

Willing to pay:$

per hour