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Limited Resources Assume Fender produces only three guitars: the Stratocaster, Dreadnought and Telecaster. A limitation of 720 labor hours per week prevents Fender from meeting the sales demand for these products. Product information is as follows:

			Stratocaster	Dreadnought	Telecaster
Unit selling price			$1,152	$720	$1,512
Unit variable costs			(720)	(360)	(1,296)
Unit contribution margin			$432	$360	$216
Labor hours per unit			36	24	36

Required Determine the weekly contribution from each product when total labor hours are allocated to the product with the highest. 1. Unit selling price. 2. Unit contribution margin. 3. Contribution per labor hour. (Hint: Each situation is independent of the others.)

	Highest Unit Selling Price	Highest Contribution per Unit	Highest Contribution per Labor Hour
	DreadnoughtStatocasterTelecaster	DreadnoughtStatocasterTelecaster	DreadnoughtStatocasterTelecaster
Labor hours available
Labor hours per unit
Weekly production
Unit contribution margin
Weekly contribution

Determine the opportunity cost the company will incur if management requires the weekly production of 20 Telecasters. Hint: You want to maximize short-run profit. Think about which guitar is most profitable. $Answer

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