Limited Resources

Assume Fender produces only three guitars: the Stratocaster, Telecaster, and Jaguar. A limitation of 960 labor hours per week prevents Fender from meeting the sales demand for these products. Product information is as follows:

Stratocaster Telecaster Jaguar Unit selling price $1,200 $900 $1,400 Unit variable costs (630) (450) (850] Unit contribution margin $570 $450 $550 Labor hours per unit 15 10 20 Required Determine the weekly contribution from each product when total labor hours are allocated to the product with the highest. 1. Unit selling price. 2. Unit contribution margin. 3. Contribution per labor hour. (Hint: Each situation is independent ofthe others.) Highest Highest Highest Unit Contribution Contribution Selling Price per Unit per Labor Hour Statocaster *:Telecaster >Jaguar Labor hours available 960 960 960 Labor hours per unit 15 x 10 x 20 x Weekly production 64 X 96 X 48 x Unit contribution margin $ 570 * $ 450 x $ 550 x Weekly contribution $ 36,480 x $ 43,200 x $ 26,400 x Determine the opportunity cost the company will incur if management requires the weekly production of 15 Jaguars. Hint: You want to maximize short-run profit. Think about which guitar is most profitable. $ 27.5 X