Portsmouth Company makes upholstered furniture. Its only variable cost is direct
ID: 2524110 • Letter: P
Question
Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or constriant) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's upholstered chairs appears below: Recliner $ 1,362 Selling price per unit Variable cost per unit Upholstery labor-hours per unit Sofa Love Seat 1,950 1,400 950 6 hours 8501,350 $ 8 hours 12 hours Required: 1. Portsmouth is considering paying its upholstery laborers additional compensation to work overtime. Assuming that this extra time would be used to produce sofas, up to how much of an overtime premium per hour should the company be willing to pay to keep the upholstery shop open after normal working hours? 2. A small nearby upholstering company has offered to upholster furniture for Portsmouth at a price of $48 per hour. The management of Portsmouth is confident that this upholstering company's work is high quality and their craftsmen can work as quickly as Portsmouth's own craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional contribution margin per hour can Portsmouth earn if it provides the raw materials to the nearby company and then hires it to upholster the Love Seats? 3. Should Portsmouth hire the nearby upholstering company? Complete this question by entering your answers in the tabs below Required 1Required 2 Required 3 Portsmouth is considering paying its upholstery laborers additional compensation to work overtime. Assuming that this extra time would be used to produce sofas, up to how much of an overtime premium per hour should the company be willing to pay to keep the upholstery shop open after normal working hours? per Required 1 Required 2>Explanation / Answer
SETP1:Based on given information calculation of contribution (per unit value in $)
Assuming that normal working hours are 8hours and over time worked for producing sofa's
Particulars Recliner Sofa Love seat
1.Selling price per unit 1362 1950 1400
2.Less:Variable Cost per unit (850) (1350) (950)
3.Less:Labour expenses (x* 8 hours) (x* 8 hours) (x*8 hours)
4.Balance as contribution 512-8x 600-8x 450-8x
5.Treated as 3 equatins 64 75 56.25
6.SOFAS OVERDUE CONTRIBUTION 300 18.75 (450/6-56.25)
(75*4 hours over worked)
7.If 48$ per hour from small business offer 27 (450/6-48)
on love seat margin contribution per hour
Conclusion : Based on above calculatins 48$ offer for love seat productin will earn margin contributioni per hour 27-18.75 excess as 8.25 margin contribution per hour.