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 companyâs capacity in the upholstering shop. Information concerning three of the companyâs upholstered chairs appears below:
Recliner Sofa Love Seat Selling price per unit $ 1,380 $ 1,810 $ 1,250 Variable cost per unit $ 800 $ 1,150 $ 950 Upholstery shop time required to produce one unit 10 hours 11 hours 4 hours
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 premium should the company be willing to pay per hour to keep the upholstery shop open after normal working hours?
| 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 companyâs capacity in the upholstering shop. Information concerning three of the companyâs upholstered chairs appears below: |
| Recliner | Sofa | Love Seat | ||||
| Selling price per unit | $ 1,380 | $ 1,810 | $ 1,250 | |||
| Variable cost per unit | $ 800 | $ 1,150 | $ 950 | |||
| Upholstery shop time required to produce one unit | 10 hours | 11 hours | 4 hours | |||
| 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 premium should the company be willing to pay per hour to keep the upholstery shop open after normal working hours? |
Related questions
Portsmouth Company makes fine colonial reproduction furniture.Upholstered furniture is one of its major product lines and thebottleneck on this production line is time in the upholstery shop.Upholstering is a craft that takes years of experience to masterand the demand for upholstered furniture far exceeds the companyâscapacity in the upholstering shop. Information concerning three ofthe companyâs upholstered chairs appears below:
| Recliner | Sofa | Love Seat | ||||
| Selling price perunit | $1,314 | $1,650 | $1,290 | |||
| Variable cost per unit | $850 | $1,100 | $950 | |||
| Upholstery shop time required toproduce one unit | 8 hours | 10 hours | 4 hours | |||
Required:
1. More time could be made available in the upholstery shop byasking the employees who work in this shop to work overtime.Assuming that this extra time would be used to produce sofas, up tohow much should the company be willing to pay per hour to keep theupholstery shop open after normal working hours?
2. A small nearby upholstering company has offered to upholsterfurniture for Portsmouth at a fixed charge of $50 per hour. Themanagement of Portsmouth is confident that this upholsteringcompanyâs work is high quality and their craftsmen should be ableto work about as quickly as Portsmouth's own craftsmen on thesimpler upholstering jobs such as the love seat. Should managementaccept this offer?
| Yes | |
| No |
