Lee-Vie Company Has Met All Production Requirements for the Current

question 33

Essay

Lee-Vie Company has met all production requirements for the current month and has an opportunity to manufacture additional units with its excess capacity. Unit selling prices and unit costs for three product lines follow. $\begin{array}{lrrr}&\text { Plain } &\text { Regular }& \text { Super }\\\text { Selling price } & \$ 40 & \$ 55 & \$ 65 \\\text { Direct material } & 12 & 16 & 22 \\\text { Direct labor (at \$20 per hour) } & 10 & 15 & 20 \\\text { Variable overhead } & 8 & 12 & 16 \\\text { Fixed overhead } & 6 & 7 & 8\end{array}$
Variable overhead is applied on the basis of direct labor dollars, whereas fixed overhead is applied on the basis of machine hours. There is sufficient demand for the additional manufacture of all products.
Required:
A. If Lee-Vie has excess machine capacity and can add more labor as needed (i.e., neither machine capacity nor labor is a constraint), which product is the most attractive to produce?
B. If Lee-Vie has excess machine capacity but a limited amount of labor time available, which product or products should be manufactured in the excess capacity?

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Definitions:

Bankruptcy Court

A specialized federal court dealing with cases involving individuals or businesses that cannot repay their outstanding debts.

Business Risk

The exposure to factors that may cause a business to experience lower profits or financial loss.

Financial Risk

The possibility of losing money on an investment or business venture due to various factors including market fluctuations, economic conditions, or management decisions.

Liquidating Corporation

A process wherein a company sells its assets, pays off creditors, and distributes any remaining assets to shareholders, effectively dissolving the company.