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 $362436$

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 Highest

Contribution

per Unit Highest

Contribution

per Labor Hour

Answer

Telecaster

Answer

Statocaster

Answer

Dreadnought

Labor hours available Answer

$720$

Answer

$720$

Answer

$720$

Labor hours per unit Answer

$36$

Answer

$36$

Answer

$24$

Weekly production Answer

$20$

Answer

$20$

Answer

$30$

Unit contribution margin Answer

$198$

Answer

$396$

Answer

$330$

Weekly contribution Answer

$3,960$

Answer

$7,920$

Answer

$9,900$

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.

$Answer

$5,940$