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Denver Cabinets Company (DCC) produces and sells specialtywooden cabinets. Production

is machine-intensive. DCC’s variable costs are direct materials,variable machining costs

and sales commissions. Robert Denver, the owner, is planningproduction for 2011.

Salespeople are paid a 6% commission on each Colonial or Modernmodels 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 machinehours which is limited by

the availability of machines. Variable machining costs are $200per hour.

Type of WoodenCabinet                                   Annual Demand inUnits             Selling Price PerUnit            Direct Material cost perunit         VariableMachining Cost 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 theestimated demand for

each type of cabinet.

b. Calculate the contribution margin per unit earned from eachtype of cabinet?

c. Advise Mr. Denver on the most profitable product mix based onthese three models.