Reference no: EM132639946

Julia 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 $100,000 for HBM, $6,000 for HBM2, and $14,500 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. Julia 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                           $47.50             $27.20                    $27.20

Costs Blank DVD                       1.20                  0.70                      0.70

Instructions and packaging           4.10                 2.10                   2.10

Prorated development costs          20.00                1.20                2.90

Margin                                      $22.20                  $23.20          $21.50

Daily demand 120 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.

Problem 1: What is the contribution margin per hour of Julia's time for each game?