Suppose that IKEA the Swedish retailer, is developing a new chair targeted to sell for less than $100 and that it is considering the two production
alternatives that follow. Rank the alternatives assuming that the company’s minimum desired profit is 30 percent over total production costs.

Alternative A

Direct material costs $35

Direct Labor cost $1 hour at $12 per hour

Overhead costs 200 percent of direct labor costs

Alternative B

Direct materials costs $20

Direct Labor costs $2 hours at $8 per hour

Overhead costs $2 per dollar of direct materials