Calen Co. manufactures and sells three products. The three products are manufactured in a plant consisting of four departments. Both direct manufacturing labor and machine time are directly applied to the products as they pass through each applicable department. The nature of the machine processing and labor skills required in each department is such that neither machines nor direct manufacturing labor can be switched from one department ot another.

Calen's management is attempting to plan its production schedule for the next several months. The planning is complicated by the fact that there are labor shortages in the community and some machines will be down several months for repairs.

The following information regarding available machine and direct manufacturing labor time by department and the machine hours and direct manufacturing labor hours required per unit of product has been accumulated to aid in the decision. This data should be valid for at least the next six months.

Q: What is the highest price in terms of a rate per hour, that Calen Co. would be willing to pay for additional capacity(that is, for added direct labor time)?

Labor and Machine Specifications Per Unit of Product The marketing department believes that the monthly sales demand for the next six months will be as follows: Inventory levels are satisfactory and need not be increased or decreased during the next six months The unit cost data and selling price that will be valid for the next six months are presented below