Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or constriant) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's upholstered chairs appears below: Recliner Sofa Love Seat Selling price per unit $ 1,284 $ 1,595 $ 1,325 Variable cost per unit $ 850 $ 1,100 $ 900 Upholstery labor-hours per unit 7 hours 11 hours 5 hours Required: 1. Portsmouth is considering paying its upholstery laborers additional compensation to work overtime. Assuming that this extra time would be used to produce sofas, up to how much of an overtime premium per hour should the company be willing to pay to keep the upholstery shop open after normal working hours? 2. A small nearby upholstering company has offered to upholster furniture for Portsmouth at a price of $42 per hour. The management of Portsmouth is confident that this upholstering companys work is high quality and their craftsmen can work as quickly as Portsmouths own craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional contribution margin per hour can Portsmouth earn if if it hires the nearby upholstering company to make Love Seats? 3. Should Portsmouth hire the nearby upholstering company?

Futura Company purchases the 79,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.40 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the companys chief engineer is opposed to making the starters because the production cost per unit is $11.30 as shown below: Per Unit Total Direct materials $ 4.00 Direct labor 3.50 Supervision 1.60 $ 126,400 Depreciation 1.40 $ 110,600 Variable manufacturing overhead 0.40 Rent 0.40 $ 31,600 Total product cost $ 11.30 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $126,400) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $87,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 79,000 starters instead of buying them from an outside supplier?