Exercise 12-6 Managing a Constrained Resource [LO12-6] Portsmouth Company makes

Question

Exercise 12-6 Managing a Constrained Resource [LO12-6] 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 conceming three of the company's upholstered chairs appears below Recliner Sofa Love Seat Selling price per unit Variable cost per unit Upholstery shop time required to 1,282 $1,950 $1,325 S850 $ 1,350 $ 900 12 hours 5 hours produce one unit 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 premiunm should the company be willing to pay per hour 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 fixed charge of $46 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 No

Explanation / Answer

1 Contribution margin per unit of Sofa=1950-1350=$600 Maximum amount payable per hour=600/12= $50 2 Yes, as cost is less than contribution margin of $50 per hour

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.