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:

Cash Receipts

The total amount of money, including cash, checks, and electronic transfers, received by a business during a given period for goods or services sold.

Fresh Start

A principle allowing entities undergoing bankruptcy to revalue their assets and liabilities, providing an opportunity to reset their financial position.

Goodwill

An intangible asset representing the value of a business's brand, customer relationships, and intellectual property beyond tangible assets.

Chapter 11 Bankruptcy

Chapter 11 Bankruptcy is a legal process that allows businesses to reorganize their debts under the protection of the bankruptcy court, aiming to return to profitability while repaying creditors in an orderly fashion.