Williams Gear makes and sells three types of computer laptop sleeves: leather, fabric, and plastic. Management is trying to determine the most profitable mix. Sales prices, demand, and use of manufacturing inputs follow:

	Leather	Fabric	Plastic
Sales price	$ 160	$ 70	$ 40
Maximum quarterly demand (sleeves)	2,500	12,500	20,000
Input requirements per unit
Direct material quantity per sleeve (ounces)	16	6	10
Direct material price per ounce of material	$ 4.25	$ 6.00	$ 2.20
Direct labor quantity per sleeve (hours)	0.9	0.4	0.3
Direct labor price per hour	$ 35	$ 35	$ 35

Other Costs
Variable costs
Factory overhead	$ 5	per direct labor-hour
Marketing	$ 6%	of sales price
Quarterly fixed costs
Manufacturing	$ 70,000
Marketing	$ 15,000
Administration	$ 60,000

Williams has two production limits: (1) the demand for the individual sleeves (see maximum quarterly demand) and (2) 10,000 direct labor-hours per quarter caused by the physical layout of the production area.

Required:

a-1. Assuming the company can satisfy the annual demand, calculate the contribution margin for each type of sleeve using the table below.

a-2.How much operating profit could Williams earn if it were able to satisfy the annual demand?

b-1.Compute the contribution margin for each sleeve per the constrained resource, direct labor.

b-2.Which of the three product lines makes the most profitable use of the constrained resource, direct labor?

c.Given the information so far, what product mix do you recommend?

d-1.Calculate the contribution margin for each type of sleeve using the product mix recommended in requirement c.

d-2.How much operating profit should your recommended product mix generate?

e.Suppose that the company could expand its labor capacity by leasing a new stitching machine that will free up 2,160 direct labor hours per quarter. What is the maximum quarterly lease payment that Williams Gear would be willing to pay?

f.Suppose the company selling the stitching machine is not quite sure without further analysis how many direct labor hours the new machine would free up. Regardless of the number of new hours, what is the maximum quarterly lease payment Williams Gear would be willing to pay?