Furniture Shop Co. manufactures three types of computer desks. The income statement for the three products and the whole company is shown below:

The company produces 1,000 units of each product. The company's capacity is 9,000 labour hours. The labour for each product is four hours for Product A, three hours for Product B, and two hours for Product C. Fixed costs are allocated based on labour hours.
Instructions
Answer the following questions:
(a) If it maintains the current production levels, should the company eliminate Product C? Explain your reasoning.
(b) If the company can sell unlimited quantities of any of the three products, which product should it produce?
(c) Suppose the company can sell unlimited quantities of any of the three products. If a customer wanted to purchase 500 units of Product C, what would the minimum sale price per unit be for this order?
(d) The company has a contract that requires it to supply 500 units of each product to a customer. The total market demand for a single product is limited to 1,500 units. How many units of each product should the company manufacture to maximize its total contribution margin?

Transcribed Image Text:

Product A $50,000 25,000 16,000 41,000 $ 9,000 Product B $60,000 40,000 12,000 52,000 Product C 65,000 60,000 Total Sales Variable costs Fixed costs Total costs Operating income $175,000 125,000 36,000 161,000 8,000 68,000 8,000 (3,000) 14.000