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: Recliner Sofa Love Seat Selling price per unit Variable cost per unit Upholstery labor-hours per unit 1,306 $ 900 $ 7 hours 1,805 $ 1,200 $ 1,460 1,100 4 hours $ $ 11 hours Required: 1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, 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 $51 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 hires the nearby upholstering company to make Love Seats? 3. Should Portsmouth hire the nearby upholstering company?
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: Recliner Sofa Love Seat Selling price per unit Variable cost per unit Upholstery labor-hours per unit 1,306 $ 900 $ 7 hours 1,805 $ 1,200 $ 1,460 1,100 4 hours $ $ 11 hours Required: 1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, 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 $51 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 hires the nearby upholstering company to make Love Seats? 3. Should Portsmouth hire the nearby upholstering company?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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:
Recliner
Sofa
Love Seat
Selling price per unit
Variable cost per unit
Upholstery labor-hours per unit
$
$
7 hours
1,805 $
1,200 $
1,460
1,100
1,306 $
900
$
11 hours
4 hours
Required:
1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, 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 $51 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 hires the nearby upholstering company to make Love Seats?
3. Should Portsmouth hire the nearby upholstering company?
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