Limited Resources Assume Fender produces only three guitars: the Stratocaster, Dreadnought and Telecaster. A limitation of...

Transcribed Image Text:

Limited Resources Assume Fender produces only three guitars: the Stratocaster, Dreadnought and Telecaster. A limitation of 720 labor hours per week prevents Fender from meeting the sales demand for these products. Product information is as follows: Stratocaster Dreadnought Telecaster Unit selling price $1,056 $660 $1,386 Unit variable costs (660) (330) (1,188) Unit contribution margin $396 $330 $198 Labor hours per unit 36 24 36 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 of the others.) Highest Unit Selling Price Telecaster Labor hours available Labor hours per unit Weekly production Unit contribution margin $ Weekly contribution $ Highest Contribution per Unit Highest Contribution per Labor Hour = Statocaster Dreadnought 720 720 36 36 20 720 24 20 30 396 $ 7,920 $ 330 9,900 - 198 $ 3,960 $ Determine the opportunity cost the company will incur if management requires the weekly production of 20 Telecasters. Hint: You want to maximize short-run profit. Think about which guitar is most profitable. $ 5,940 x Limited Resources Assume Fender produces only three guitars: the Stratocaster, Dreadnought and Telecaster. A limitation of 720 labor hours per week prevents Fender from meeting the sales demand for these products. Product information is as follows: Stratocaster Dreadnought Telecaster Unit selling price $1,056 $660 $1,386 Unit variable costs (660) (330) (1,188) Unit contribution margin $396 $330 $198 Labor hours per unit 36 24 36 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 of the others.) Highest Unit Selling Price Telecaster Labor hours available Labor hours per unit Weekly production Unit contribution margin $ Weekly contribution $ Highest Contribution per Unit Highest Contribution per Labor Hour = Statocaster Dreadnought 720 720 36 36 20 720 24 20 30 396 $ 7,920 $ 330 9,900 - 198 $ 3,960 $ Determine the opportunity cost the company will incur if management requires the weekly production of 20 Telecasters. Hint: You want to maximize short-run profit. Think about which guitar is most profitable. $ 5,940 x