Question - Utilization of a constrained resource practice.
A company manufactures bracelets and necklaces. Selling price and cost data as follows:
|
Bracelets
|
Necklace
|
|
Selling price
|
$25
|
$42
|
|
Variable manufacture costs :
|
|
|
|
Direct materials
|
$7
|
$10
|
|
Direct labor
|
$9
|
$18
|
|
Variable manufacture overhead
|
$2
|
$3
|
Labor is in short supply, so the company needs to figure out which product is more profitable to produce. Laborers earn $12 an hour, and the wage rate is the same for both products. Calculate the contribution margin per unit of constrain resource for each product.
Assume there is demand for 500 bracelets and 700 necklaces each week. If only 405 weekly hours of labor are available, how many units of each product should the company manufacture each week?The company is considering paying its direct labors overtime so that additional jewelry can be manufactured. What is the maximum total rate per hour the jewelry company should be willing to pay for direct labor?