EXERCISE 6-6 Managing a Constrained Resource L06-6 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 constraint) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's upholstered chairs appears below: 2. tion mar Selling price per unit. Variable cost per unit. Upholstery labor-hours per unit. Recliner $1,400 $800 8 hours Sofa $1,800 $1,200 10 hours Required: 1. Portsmouth is considering paying its upholstery laborers additional compensation to work un 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? the A small nearby upholstering company has offered to upholster furniture for Portsmouth at a price 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 is craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional con- tribution margin per hour can Portsmouth earn if it hires the nearby upholstering company to bomake Love Seats? 3. Should Portsmouth hire the nearby upholstering company? Explain. Love Seat $1,500 $1,000 5 hours
EXERCISE 6-6 Managing a Constrained Resource L06-6 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 constraint) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's upholstered chairs appears below: 2. tion mar Selling price per unit. Variable cost per unit. Upholstery labor-hours per unit. Recliner $1,400 $800 8 hours Sofa $1,800 $1,200 10 hours Required: 1. Portsmouth is considering paying its upholstery laborers additional compensation to work un 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? the A small nearby upholstering company has offered to upholster furniture for Portsmouth at a price 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 is craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional con- tribution margin per hour can Portsmouth earn if it hires the nearby upholstering company to bomake Love Seats? 3. Should Portsmouth hire the nearby upholstering company? Explain. Love Seat $1,500 $1,000 5 hours
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:EXERCISE 6-6 Managing a Constrained Resource L06-6
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
constraint) in the production process is upholstery labor-hours. Information concerning three of
Portsmouth's upholstered chairs appears below:
Selling price per unit.
Variable cost per unit
Upholstery labor-hours per unit
um 1.
Recliner
$1,400
$800
8 hours
Sofa
$1,800
$1,200
10 hours
Love Seat
$1,500
$1,000
5 hours
Required:
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
the overtime premium per hour should the company be willing to pay to keep the upholstery shop
open after normal working hours?
that Barlow's 2.
A small nearby upholstering company has offered to upholster furniture for Portsmouth at
ation mat998 a price of $45 per hour. The management of Portsmouth is confident that this upholstering
loot
company's work is high quality and their craftsmen can work as quickly as Portsmouth's own
mist craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional con-
tribution margin per hour can Portsmouth earn if it hires the nearby upholstering company to
make Love Seats?
3. Should Portsmouth hire the nearby upholstering company? Explain.
EXERCISE 6-7 Sell or Process Further Decisions L06-7
Dorsey Company manufactures three products from a common input in a joint processing opera-
tion. Joint processing costs up to the split-off point total $350,000 per quarter. For financial
reporting purposes, the company allocates these costs to the joint products on the basis of their
relative sales value at the split-off point. Unit selling prices and total output at the split-off point
are as follows:
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