Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profitable mix. Sales prices, demand, and use of manufacturing inputs follow.

BasicClassicFormalSales price$30$64$190Maximum annual demand (units)20,00010,00030,000Input requirement per unitDirect material0.5yards0.3yards0.6yardsDirect labor0.7hours2hours7hours

CostsVariable costsMaterials$20per yardDirect labor$16per hourFactory overhead$4per direct labor-hourMarketing10% of sales priceAnnual fixed costsManufacturing$36,000Marketing$8,000Administration$30,000

The company faces two limits: (1) the volume of each type of shirt that it can sell (see maximum annual demand) and (2) 30,000 direct labor-hours per year caused by the plant layout.

Required:

b-1.Compute the contribution margin for each shirt per the constrained resource, direct labor.

b-2.Which of the three product lines makes the most profitable use of the constrained resource, direct labor?

c.Given the information in the problem so far, what product mix do you recommend?

d-1.Calculate the contribution margin for each type of dress shirt using the table below.

d-2.How much operating profit should your recommended product mix generate?

e.Suppose that the company could expand its labor capacity by running an extra shift that could provide up to 10,000 more hours. The direct labor cost would increase from $16 to $19 per hour for all hours of direct labor used during the additional shift. What additional product(s) should Austin manufacture and what additional profit would be expected with the use of the added shift?