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 constriant) 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 $ 1,320 $ 2,115 $ 1,550 Variable cost per unit $ 800 $ 1,400 $ 1,100 Upholstery labor-hours per unit 10 hours 13 hours 6 hours Required: 1. Portsmouth is considering paying its upholstery laborers additional compensation 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 $52 per hour. The management of Portsmouth is confident that this upholstering companys work is high quality and their craftsmen can work as quickly as Portsmouths own craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional contribution margin per hour can Portsmouth earn if it provides the raw materials to the nearby company and then hires it to upholster the Love Seats? 3. Should Portsmouth hire the nearby upholstering company?

Portsmouth Company makes upholstered furniture. Its only varlable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or constriant) in the production process is upholstery labor- hours. Information concerning three of Portsmouth's upholstered chairs appears below: Recliner Selling price per unit Variable cost per unit Upholstery labor-hours per unit Sofa Love Seat $ 1,320 2,115 1,550 800 1,400 S1,100 10 hours 13 hours 6 hours Required: 1. Portsmouth is considering paying its upholstery laborers additional compensation 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 $52 per hour. The management of Portsmouth is confident that this upholstering company's work is high quallty 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 provides the raw materials to the nearby company and then hires It to upholster the Love Seats? 3. Should Portsmouth hire the nearby upholstering company