Question

Carla 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 $97,000 for HBM, $5,000 for HBM2, and $14,000 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. Carla 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 $ 52.90 $ 29.90 $ 29.90 Costs Blank DVD 1.00 0.50 0.50 Instructions and packaging 3.90 1.90 1.90 Prorated development costs* 19.40 1.00 2.80 Margin 28.60 $ 26.50 $ 24.70 Daily demand 140 games 120 games 90 games *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 Carla's time for each game? (Round all entries to 2 decimal places, e.g. 5.35.) HBM HBM2 HBM3 Contribution margin per hour: 960.00 825.00 1,237.50 In what order should Carla produce the games? Production order: HBM3, then HBM, and then HBM2 Using the general decision rule for constrained capacity, what is the most Carla 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 Carla.) (Round entry to 2 decimal places, e.g. 5.35.) Willing to pay: S per hour

Answer 1

Willing to pay $825 per hour

It will take 2 hours to meet demand of HBM3
It will take 7 hours to meet demand of HBM
But we have only 8 hours in a day, so he has to hire extra worker.

$825 per hour can be paid because only 1 hour has to be used for HBM and remaining for HBM 2 for which contributiom margin per hour is $825, so maximum amount that can be paid is $825 per hour, as paying more than 825 will lead to negative contribution and hence loss

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