Check my work 5 Portsmouth Company makes upholstered furniture. Its only variabl

ID: 2536459 • Letter: C

Question

Check my work 5 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: 10 points Recliner Sofa Selling price per unit Variable cost per unit Upholstery labor-hours per unit Love Seat $1,400 $1,6001,525 900 1,200 1,100 5 hours 10 hours 10 hours eBook Hint 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 $37 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? Print References Complete this question by entering your answers in the tabs below

Explanation / Answer

1. 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?

“ Maximum amount payable per hour = $40 per hour “

SOFA - Selling price per unit = $1600

SOFA - Variable cost per unit = $1200

SOFA - Contribution margin per unit = $400

Upholstery shop time required to produce one unit = 10 Hours

Contribution margin per unit of the constrained resource = $400 / 10 Hrs = $40 per hour

2. 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?

Recliner

Sofa

Love Seat

Selling price per unit

$1,400.00

$1,600.00

$1,525.00

Variable cost per unit

$900.00

$1,200.00

$1,100.00

Contribution per unit

$500.00

$400.00

$425.00

Upholstery shop time required to produce one unit

Contribution per hour

$50.00

$40.00

$85.00

Additional contribution margin that the Portsmouth can earn = $48 per hour

($85 per hour - $37 per hour )

3. Should Portsmouth hire the nearby upholstering company?

YES