Exercise 4.26

Pearl 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 $88,000 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. Pearl 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.

				HBM			HBM2			HBM3
Selling price				$	48.00		$	28.30		$	28.30
Costs
	Blank DVD				1.20			0.70			0.70
		Instructions and packaging			3.80			1.80			1.80
		Prorated development costs*			17.60			1.20			2.90
Margin				$	25.40		$	24.60		$	22.90
Daily demand				120 games			120 games			90 games

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

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

		HBM			HBM2			HBM3
Contribution margin per hour:		$			$			$

In what order should Pearl produce the games?

Production order: HBM3, then HBM, and then HBM2HBM2, then HBM3, and then HBMHBM3, then HBM2, and then HBMHBM, then HBM2, and then HBM3HBM, then HBM3, and then HBM2HBM2, then HBM, and then HBM3

Using the general decision rule for constrained capacity, what is the most Pearl 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 Pearl.) (Round entry to 2 decimal places, e.g. 5.35.)

Willing to pay:

$ per hour