Portsmouth Company makes upholstered furniture. Its onlyvariable cost is direct materials. The demand for the company'sproducts far exceeds its manufacturing capacity. The bottleneck (orconstraint) 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	$	1,376		$	1,850		$	1,425
Variable cost per unit	$	800		$	1,300		$	1,050
Upholstery labor-hours per unit	9 hours			10 hours			5 hours

Required:

1. Portsmouth is considering paying its upholstery laborershourly compensation, in addition to their usual salaries, to workovertime. Assuming that this extra time would be used to producesofas, up to how much of an overtime premium per hour should thecompany be willing to pay to keep the upholstery shop open afternormal working hours?

2. A small nearby upholstering company has offered to upholsterfurniture for Portsmouth at a price of $49 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 if it hires the nearby upholstering company tomake Love Seats?

3. Should Portsmouth hire the nearby upholstering company?