Excess Production Capacity
Carpenter’s Mate, Inc manufactures electric carpentry tools. The Production Department has met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity. Unit selling prices and unit costs for three different drill models are as follows:
| Home Model | Deluxe Model | Pro Model |
Selling price | $58 | $65 | $80 |
Direct material | 16 | 20 | 19 |
Direct labor($10 per hour) | 10 | 15 | 20 |
Variable overhead | 8 | 12 | 16 |
Fixed overhead | 16 | 5 | 15 |
Variable overhead is applied on the basis of direct-labor dollars, while fixed overhead is applied on the basis of machine hours. There is sufficient demand for the additional production of any model in the product line.
Required:
1. If Carpenter’s Mate, Inc. has excess machine capacity and can add more labor as needed (i.e., neither machine capacity nor labor is a constraint), the excess production capacity should be devoted to producing which product? (Assume that the excess capacity will be used for a single product line.)
2. If Carpenter’s Mate has excess machine capacity but a limited amount of labor time, the excess production capacity should be devoted to producing to which product or products?
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