Portsmouth Company makes fine colonial reproduction furniture. Upholstered furni

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: 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 of a premium should the company be willing to pay per hour to keep the upholstery shop open after normal working hours?

Explanation / Answer

since extra hour will be used to produce sofa ,therefore maximum rate to be quoted should be equal to contribution generated per hour from producing sofa.

so maximum amount payable = $ 60 per hour

selling price 1800 less:Variable cost (1200) contribution 600 Hours required per sofa 10 contribution per hour generated    600/10 $ 60 per hour

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