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 products appears below: Selling price per unit Recliner $ 1,248 Variable cost per unit $ 800 Sofa $ 2,090 $1,250 Love Seat $ 1,525 $ 1,100 Upholstery labor-hours per unit 7 hours 14 hours 5 hours Required: 1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work overtime. Assuming this extra time would be used to produce sofas, up to how much of an overtime rate 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 $55 per hour. The management of Portsmouth is confident this upholstering company's work is high quality, and its 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 supplies the direct material and hires the nearby upholstering company to upholster Love Seats? 3. Should Portsmouth hire the nearby upholstering company? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work overtime. Assuming this extra time would be used to produce sofas, up to how much of an overtime rate per hour should the company be willing to pay to keep the upholstery shop open after normal working hours? Maximum overtime rate per hour

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 products appears below:
Selling price per unit
Recliner
$ 1,248
Variable cost per unit
$ 800
Sofa
$ 2,090
$1,250
Love Seat
$ 1,525
$ 1,100
Upholstery labor-hours per unit
7 hours
14 hours
5 hours
Required:
1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to
work overtime. Assuming this extra time would be used to produce sofas, up to how much of an overtime rate 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 $55 per hour.
The management of Portsmouth is confident this upholstering company's work is high quality, and its 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 supplies the direct material and hires the nearby
upholstering company to upholster Love Seats?
3. Should Portsmouth hire the nearby upholstering company?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Required 3
Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work
overtime. Assuming this extra time would be used to produce sofas, up to how much of an overtime rate per hour should the
company be willing to pay to keep the upholstery shop open after normal working hours?
Maximum overtime rate per hour
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 products appears below: Selling price per unit Recliner $ 1,248 Variable cost per unit $ 800 Sofa $ 2,090 $1,250 Love Seat $ 1,525 $ 1,100 Upholstery labor-hours per unit 7 hours 14 hours 5 hours Required: 1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work overtime. Assuming this extra time would be used to produce sofas, up to how much of an overtime rate 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 $55 per hour. The management of Portsmouth is confident this upholstering company's work is high quality, and its 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 supplies the direct material and hires the nearby upholstering company to upholster Love Seats? 3. Should Portsmouth hire the nearby upholstering company? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work overtime. Assuming this extra time would be used to produce sofas, up to how much of an overtime rate per hour should the company be willing to pay to keep the upholstery shop open after normal working hours? Maximum overtime rate per hour
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