Assume Fender produces only three guitars: the Stratocaster, Dreadnought and Telecaster. A limitation of 720 labor...

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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 $1.386 (1.188) $198 36 Unit selling price Unit variable costs Unit contribution margin Labor hours per unit $1.056 (660) $396 36 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. Labor hours available Labor hours per unit Weekly production 3. Contribution per labor hour. (Hint: Each situation is independent of the others.) Unit contribution margin $ Weekly contribution S $660 (330) $330 24 Highest Unit Selling Price Telecaster Highest Contribution per Unit + Statocaster 720 36 20 198 S 3960 $ Highest Contribution per Labor Hour + Dreadnought 720 36 20 396 S 7920 S AP 720 24 30 330 9900 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. 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 $1.386 (1.188) $198 36 Unit selling price Unit variable costs Unit contribution margin Labor hours per unit $1.056 (660) $396 36 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. Labor hours available Labor hours per unit Weekly production 3. Contribution per labor hour. (Hint: Each situation is independent of the others.) Unit contribution margin $ Weekly contribution S $660 (330) $330 24 Highest Unit Selling Price Telecaster Highest Contribution per Unit + Statocaster 720 36 20 198 S 3960 $ Highest Contribution per Labor Hour + Dreadnought 720 36 20 396 S 7920 S AP 720 24 30 330 9900 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 rating: 100% (QA)

SOLUTION To determine the opportunity cost incurred if the company produces 20 Telecasters per week we need to compare the contribution from producing 20 Telecasters with the contribution from produci... View the full answer