Bill has just returned from a duck hunting trip. He brought home eight ducks. Bills friend, John, disapproves of duck hunting, and to discourage Bill from further hunting, John presented him with the following cost estimate per duck:

Camper and equipment: Cost, $14,000; usable for eight seasons; 14 hunting trips per season$ 125Travel expense (pickup truck): 100 miles at $0.45 per mile (gas, oil, and tires$0.26 per mile; depreciation and insurance$0.19 per mile)45Shotgun shells (two boxes per hunting trip)35Boat: Cost, $2,160, usable for eight seasons; 14 hunting trips per season19Hunting license: Cost, $50 for the season; 14 hunting trips per season4Money lost playing poker: Loss, $20 (Bill plays poker every weekend whether he goes hunting or stays at home)20Bottle of whiskey: Cost, $15 per hunting trip (used to ward off the cold)15Total cost$ 263Cost per duck ($263 8 ducks)$ 33

Required:

1. Assuming the duck hunting trip Bill has just completed is typical, what costs are relevant to a decision as to whether Bill should go duck hunting again this season?

2. Suppose Bill gets lucky on his next hunting trip and shoots 14 ducks using the same amount of shotgun shells he used on his previous hunting trip to bag 8 ducks. How much would it have cost him to shoot the last six ducks?

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 constraint) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's products appears below:

ReclinerSofaLove SeatSelling price per unit$ 1,098 $ 1,900 $ 1,350 Variable cost per unit$ 750 $ 1,350 $ 1,000 Upholstery labor-hours per unit6hours11hours5hours

Required:

1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work overtime. Assuming that this extra time would be used to produce sofas, up to how much of an overtime rate 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 $48 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 hires the nearby upholstering company to make Love Seats?

3. Should Portsmouth hire the nearby upholstering company?