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QUESTION 4(18 marks, 36 minutes) Ernies' Teas produces a complete line of high-quality teas and, in addition, manufactures a brew-it-yourself kit. Sales are increasing and management is concerned that the company may not have sufficient capacity to meet the expected demand in the coming year The following sales and production data are available for planning purposes: ESTIMATED SELLING DIRECT DIRECT PRODUCT DEMAND PRICE MATERIALS LABOUR White rose 30,000 $14 $1.42 $6.60 Earl teal 100,000 $12 $1.39 $3.30 Red Peek o 200,000 $15 $1.15 $2.75 The following additional infomation is available: a) As a result of strong competition, the company feels that it cannot increase the selling prices above those indicated. b) The direct labour rate is $11.00 per hour this rate is not expected to change during the coming year c) Fixed overhead costs total $540,000 per year. Variable overhead costs are equal to 20% of direct labour costs. d) The company's plant has a capacity of 90,000 direct labour hours per year on a single shift basis. The company's present employees and equipment can produce all three products. e) The company's present inventory of finished products is nominal and can be ignored. f) All of the company's non-manufacturing costs are fixed. REQUIRED: 1. Determine what products will be produced and how many of each product will be produced so that the total production time stays within the hours available. 2. What is the maximum amount the company would be willing to pay to outsource enough labour to meet demand for all products? Is it likely they will be able to do this? Why or why not?

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