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Susan Company manufactures a variety of tea pots. The demand for the pots has kept increasing and the management foresees that the production line would
Susan Company manufactures a variety of tea pots. The demand for the pots has kept increasing and the management foresees that the production line would not have enough capacity to satisfy the market. The company then makes the following estimates for next year: Additional information: (i) The factory has a capacity of 10,000 direct labor hours per annum. (ii) The direct labor rate is estimated at $40 per hour. (iii) Total fixed cost per annum is $620,000. (iv) Variable manufacturing overheads are $8 per direct labor hour. Required: (a) Determine the contribution margin per direct labor hour for each product. (6 marks) (b) To maximize the total contribution, calculate the number of units of each product that the company to be produced and their respective contributions for the year. (8 marks) (c) Determine the highest direct labor rate that the company would be willing to pay for additional capacity. (3 marks) (d) If the company does not want to loss sales, suggest some ways other than (c) for the company to meet the production quantity for the expected sales
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