Portsmouth Company makes fine colonial reproduction furniture. Upholstered furni
ID: 2601635 • 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. The company's only variable cost is direct materials. Information concerning three of the company's upholstered chairs appears below: Recliner Sofa Selling price per unit Variable cost per unit Upholstery shop time required to produce one unit Love Seat $ 1,900 1,275 900 5 hours $1,344 750 1,200 S 9 hours 14 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 of a premium should the company be willing to pay in terms of an overtime premium per hour to keep the upholstery shop open after normal working hours? . 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 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.Explanation / Answer
Recliner Sofa LoveSeat Selling Price 1344 1900 1275 Variable Cost 750 1200 900 Contribution 594 700 375 Hrs Required 9 14 5 Contribution per hr 66 50 75 1 For Sofas maximum can pay $50 per hour 2 Contribution per hr 75 Less: Charges per Hr 45 Additional Contribution 30 3 Yes, Portsmounth should hire the nearby uphostering company, as the lowest contributor is sofa i.e. 50 per hour and it charges only $45 per hour so in case of sofa additional contribution $5 per hour, Recliner $21 per hour & Lover Seat $30 per hour