Question

Christine's Chronographs makes two models of a high-end watch—the model 94 and the model 101. Both models go through a special polishing step that requires the use of the single polishing machine at the company. The price and costs of the two models appear as follows.

	Model 94			Model 101
Price per watch	$	4,700		$	8,900
Variable cost per watch	$	2,400		$	5,000
Polishing hours per watch		2			3

The polishing machine used for both models has a capacity of 19,200 hours annually. Fixed manufacturing costs are $7,400,000 annually.

Required:

a. Suppose that the maximum annual unit sales that Christine's can achieve is 10,000 units of the Model 94 and 7,400 of the Model 101. How many units of each watch model should Christine's produce annually?

b. Suppose that the maximum annual unit sales that Christine's achieve make is 8,000 units of the Model 94 and 5,000 of the Model 101. How many units of each watch model should Christine's produce annually?

Required A

Suppose that the maximum annual unit sales that Christine's can achieve is 10,000 units of the Model 94 and 7,400 of the Model 101. How many units of each watch model should Christine's produce annually?

	Model 94 units Model 101 units

Required B

Suppose that the maximum annual unit sales that Christine's achieve make is 8,000 units of the Model 94 and 5,000 of the Model 101. How many units of each watch model should Christine's produce annually?

	Model 94 units Model 101 untis

Answer 1

1) Contribution margin per hour

	Model 94	Model 101
Selling price	4700	8900
variable cost	2400	5000
Contribution margin	2300	3900
Hour per watch	2	3
Contribution margin per hour	1150	1300

a) Production Unit

Model 94	0
Model 101 (19200/3)	6400 Units

b) Production units

Model 94 (19200-15000/2)	2100 Units
Model 101	5000 Units