Denver Cabinets Company (DCC) produces and sells specialty wooden cabinets. Production is machine-intensive. DCC’s variable costs are direct materials, variable machining costs and sales commissions. Robert Denver, the owner, is planning production for 2011. Salespeople are paid a 6% commission on each Colonial or Modern models sold and an 8% commission on each Distressed model sold. Fixed costs (administrative/selling and production) total $8,750,000. Annual capacity is 50,000 machine hours which is limited by the availability of machines. Variable machining costs are $200 per hour.
|
Type of Wooden Cabinet |
Annual Demand in units |
Selling Price per Unit |
Direct material costs per unit |
Variable machining costs per unit |
|
Colonial |
4,000 |
$3,000 |
$750 |
$600 |
|
Modern |
5,000 |
$2,100 |
$500 |
$500 |
|
Distressed |
30,000 |
$800 |
$100 |
$300 |
a. Calculate the machine hours per unit required to satisfy the estimated demand for each type of cabinet.
b. Calculate the contribution margin per unit earned from each type of cabinet?
