Management requires the weekly production of telecasters

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Reference no: EM131967730

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

Unit selling price $768 $480 $1,008

Unit variable costs (480) (240) (864)

Unit contribution margin $288 $240 $144

Labor hours per unit 36 24 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.

3. Contribution per labor hour. (Hint: Each situation is independent of the others.)

Highest Unit Selling Price Highest Contribution per Unit Highest Contribution per Labor Hour

Stratocaster Dreadnought Telecaster

Labor hours available

Labor hours per unit

Weekly production Labor hours per unit

Unit contribution margin

Weekly contribution

Determine the opportunity cost the company will incur if management requires the weekly production of 20 Telecasters.

Reference no: EM131967730

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