Portsmouth Company makes upholstered furniture. Its onlyvariable cost is direct materials. The demand for the company'sproducts far exceeds its manufacturing capacity. The bottleneck (orconstriant) in the production process is upholstery labor-hours.Information concerning three of Portsmouth's upholstered chairsappears below:

	Recliner			Sofa			Love Seat
Selling price per unit	$	1,150		$	1,740		$	1,460
Variable cost per unit	$	800		$	1,300		$	950
Upholstery labor-hours per unit	7 hours			11 hours			6 hours

Required:

1. Portsmouth is considering paying its upholstery laborersadditional compensation to work overtime. Assuming that this extratime would be used to produce sofas, up to how much of an overtimepremium per hour should the company be willing to pay to keep theupholstery shop open after normal working hours?

2. A small nearby upholstering company has offered to upholsterfurniture for Portsmouth at a price of $34 per hour. The managementof Portsmouth is confident that this upholstering company’s work ishigh quality and their craftsmen can work as quickly asPortsmouth’s own craftsmen on the simpler upholstering jobs such asthe Love Seat. How much additional contribution margin per hour canPortsmouth earn if it hires the nearby upholstering company to makeLove Seats?

3. Should Portsmouth hire the nearby upholstering company?