Huber Chairs, Inc., makes two types of chairs. Model Diamond is a high-end product designed for professional offices. Model Gold is an economical product designed for family use. Pamela Huber, the president, is worried about cut-throat price competition in the chairs market. Her company suffered a loss last quarter, an unprecedented event in its history. The company’s accountant prepared the following cost data for Ms. Huber.

The market price for office chairs comparable to Model Diamond is $130 and to Model
Gold is $84.

a. Compute the cost per unit for both products. Round your figures to two decimal points.
b. Jimmy Bent, the chief engineer, told Ms. Huber that the company is currently making 150 units of Model Diamond per batch and 245 units of Model Gold per batch. He suggests doubling the batch sizes to cut the number of setups in half, thereby reducing the setup cost by 50 percent. Compute the cost per unit for each product if Ms. Huber adopts his suggestion. Round your figures to two decimal points.
c. Is there any side effect if Ms. Huber increases the production batch size by 100percent?

  • CreatedFebruary 07, 2014
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