Question 5 Incredible Furniture produces and sells three models of recliner chairs, Classic model, Velvet model and Leather model. Production is a machine intensive process. Harry Town, the owner, is planning production for the coming year and collects the following data: Classic Velvet Leather Estimated demand (units) 2,175 5,566 26,000 Selling price Direct material per unit cost per unit 3,200.00 765.00 2,050.00 495.00 756.00 99.00 Variable machining cost per unit 591.00 492.50 197.00 " Salespeople are paid a 6% commission on each Classic or Velvet sold and a 9% commission on each Leather model sold. All other marketing and administrative costs are fixed and, along with the fixed manufacturing costs, total $9,856,000. Annual capacity is 41,000 machine-hours, which is limited by the availability of machines. Variable machining costs are $197 per hour. Required: a) Advise Harry Town about the most profitable production levels of each model of recliner chairs. Show calculations to support your answer. (10 marks) b) Suppose Harry Town can lease additional machining capacity on an as-needed basis. What is the maximum amount that Harry Town would be willing to pay for each hour of additional machining capacity in the coming year? (3 marks) c) Harry Town is planning to launch a new model of recliner chair by end of next year. Describe the pricing strategies he could use to price the new model of recliner chair. (3 marks) d) Harry Town obtained a range of IT consulting services from Browns Ltd. Browns Ltd uses a chargeout rate of $587 per professional labour hour when billing for customers. Explain to Harry Town the meaning of chargeout rate and why the billing system would be a preferred method for estimating client fees. (4 marks) (10 +3 +3 + 4 = 20 marks)