Portsmouth Company makes fine colonial reproduction furniture. Upholstered furni
ID: 2432583 • Letter: P
Question
Portsmouth Company makes fine colonial reproduction furniture. Upholstered furniture is one of its major product lines and the bottleneck on this production line is time in the upholstery shop. Upholstering is a craft that takes years of experience to master and the demand for upholstered furniture far exceeds the company's capacity in the upholstering shop. Information concerning three of the company's upholstered chairs appears below: Recliner $1,400 800 8 hours Sofa Love Seat $1,500 $1,000 5 hours $1,800 Selling price per unit Variable cost per unit Upholstery shop time required to produce one unit 1,200 10 hours Required 1. More time could be made available in the upholstery shop by asking the employees who work in this shop to work overtime. Assuming that this extra time would be used to produce sofas, up to how much should the company be willing to pay per hour to keep the upholstery shop open after normal working hours? Maximum amount payable per hour 2. A small nearby upholstering company has offered to upholster furniture for Portsmouth at a fixed charge of $45 per hour. The management of Portsmouth is confident that this upholstering company's work is high quality and their craftsmen should be able to work about as quickly as Portsmouth's own craftsmen on the simpler upholstering jobs such as the love seat. Should management accept this offer? Yes NoExplanation / Answer
a. Company Should be willing to pay $ 200 Per Hour to Keep the Upholstry Shop Open after normal working hours as this is highest rate per hour given to them for the production of Love Seat.Hence, this would be the incentive to them for production.
Recliner Sofa Love Seat Selling Price Per Unit 1400 1800 1500 Variable Cost Per Unit 800 1200 1000 Upholstery Shop Time Required to Produce One Unit (Hrs) 8 10 5 Per Hour Cost = Variable Cost/No of Hours Required 100 120 200