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 $$672$ $$420$ $$882$

Unit variable costs $(420)(210)(756)$

Unit contribution margin $$252$ $$210$ $$126$

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

Answer

Answer

Labor hours available Answer

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Labor hours per unit Answer

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Weekly production Answer

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Unit contribution margin Answer

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Weekly contribution Answer

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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