Answer:
1. $55 per hour
2. $41 per hour
3.Yes
Explanation:
1. Calculation to determine how much of an overtime premium per hour should the company be willing to pay.
Selling price per unit $ 1,750
Less Variable cost per unit ($1,200)
Contribution margin per unit (a) $ 550
Upholstery shop time required to produce one unit (b) 10 hours
Contribution margin per unit of the constrained resource (a) ÷ (b) $55 per hour
($550/10 hours)
Therefore the Maximum overtime premium per hour will be $55 per hour
2. Calculation to determine How much additional contribution margin per hour can Portsmouth earn
First step is to calculate the Contribution margin per unit of the constrained resource
Selling price per unit $ 1,190
Less Variable cost per unit ($850)
Contribution margin per unit (a) $ 340
Upholstery shop time required to produce one unit (b) 4hours
Contribution margin per unit of the constrained resource (a) ÷ (b) $85 per hour
($340/4 hours )
Now let calculate The additional contribution margin per hour earned by hiring the nearby company
Additional contribution margin per hour earned= $85 – $44
Additional contribution margin per hour earned= $41 per hour
Therefore The additional contribution margin per hour earned by hiring the nearby company will be $41 per hour
3. Yes . Portsmouth should hire the nearby upholstering company reason been that Portsmouth will earn an additional contribution margin of $41 per hour by hiring the nearby company
