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I need help with part 4,

thank you

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Taylor Furniture produces and sells specialty mattresses. Production is a machine-intensive process.
Taylor's variable costs are direct material costs, variable machining costs, and sales commissions. Marion
Taylor, the owner, is planning production for the coming year and collects the following data:
Estimated
Selling Price
Direct material
Variable
Demand (units)
cost per unit
machining costs
Nealy
per unit
1,800
$3,000
$750
$600
Tersa
4,500
2,100
500
500
Pelta
39,000
800
100
200
. Salespeople are paid a 5% commission on each Nealy or Tersa sold, and a 10% commission on each
Pelta sold. All other marketing and administrative costs are fixed and, along with the fixed
manufacturing costs, total $8,750,000.
Annual capacity is 50,000 machine-hours, which is limited by the availability of machines. Variable
machining costs are $200 per hour.
Taylor Furniture holds negligible inventories to minimize business risk
Required:
1. Calculate the machine hours required to satisfy the estimated demand for each type of
mattress.
2. What is the contribution margin per unit earned from each type of mattess?
3. Advise Marion Taylor about the most profitable production levels of the three products.
4. Suppose Taylor Furniture can lease additional machining capacity on an as-needed basis. What
is the maximum amount that Marion Taylor would be willing to pay for each hour of additional
machining capacity in the coming year?

Top Answer

I assume you have calculated the contribution per machine hour for every product and also the statement for optimum... View the full answer

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7. 5 x 0.9905
= )
7042
cont.
for MIC hour.
Neely
Tensa
Pelt a
210 0
800
=
3000
750 ) ( soo )
variable
( 600
( 200 )
Comm
( 3000* 5% ) ( 2100x 5% ) ( 800x 10/)
= 150
2105
2 80
to
Total cont .
1500
9...

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