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: ReclinerSofaLove SeatSelling price per unitVariable cost per unitUpholstery labor-hours per unit1,300 $900 $8 hours1,800 $1,250 $11 hours1,3109504 hours$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 companybe 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 $48 per hour. The managementof Portsmouth is confident that this upholstering company's work is high quality and their craftsmen can work as quickly asPortsmouth's own craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional contribution margin perhour can Portsmouth earn if it hires the nearby upholstering company to make Love Seats?3. Should Portsmouth hire the nearby upholstering company?Answer is not complete.Complete this question by entering your answers in the tabs below.Required 1Required 2Required 3A small nearby upholstering company has offered to upholster furniture for Portsmouth at a fixed charge of $48 per hour. Themanagement of Portsmouth is confident that this upholstering company's work is high quality and their craftsmen can work asquickly as Portsmouth's own craftsmen on the simpler upholstering jobs such as the Love Seat. How much additionalcontribution margin per hour can Portsmouth earn if it hires the nearby upholstering company to make Love Seats?Show lessAAdditional contribution margin per hour ReclinerSofaLove SeatSelling price per unitVariable cost per unitUpholstery labor-hours per unit1,800 $1,250 $11 hours$1,300 $900 $8 hours1,3109504 hoursRequired: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 companybe 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 $48 per hour. The managementof Portsmouth is confident that this upholstering company's work is high quality and their craftsmen can work as quickly asPortsmouth's own craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional contribution margin perhour can Portsmouth earn if it hires the nearby upholstering company to make Love Seats?3. Should Portsmouth hire the nearby upholstering company?Answer is not complete.Complete this question by entering your answers in the tabs below.Required 1Required 2Required 3Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to workovertime. Assuming that this extra time would be used to produce sofas, up to how much of an overtime premium per hourshould the company be willing to pay to keep the upholstery shop open after normal working hours?Maximum overtime premium per hour

When there is a huge demand for the company’s product in the market and there are production constraints relating to the availability of labor hours. Production activities can be outsourced, taking into account the contribution margin earned on the product and the cost of outsourcing the production.1. Calculation of maximum overtime premium per hour. Reference: Calculation: Therefore, the maximum overtime premium per hour that the company shall be willing to pay to keep the upholstery shop open after normal working hours is $ 50 per hour which is the contribution per labor hour that the company shall earn by employing the laborers' overtime. 2. Calculation of additional contribution margin per hour: Reference: Calculation: 3. The Portsmouth company shall earn an additional contribution of $42 per hour on hiring an upholstering company for producing love seats. To satisfy the additional demand for love seats it worth hiring the upholstery company, because it would result in a net gain of $42 per hour ($90-$48). If the demand for the love seat can be satisfied through the normal production activities still it would be profitable to hire an upholstery company, because in all the cases the cost per hour of $42 is less than the contribution per labor hour earned for all the chairs i.e. Recliner $50 [($1300-$900)/8 hours], Sofa $ 50 and love seat $ 90 per hour. Hence, the contribution amount over and above the labor cost per of the upholstering company shall result in a net gain for the company. Therefore, Portsmouth should hire a nearby upholstering company.