Past experience has shown that the fixed manufacturing overhead component includ
ID: 2496701 • Letter: P
Question
Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $30. Management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers
If 50,000 machine hours are available, and management desires to follow an optimal strategy, how many units of each product should the firm manufacture? How many units of each product should be purchased?
With all other things constant, if management is able to reduce the direct material for a food processor to $18 per unit, how many units of each product should be manufactured? Purchased?
Chef Gourmet, Inc., has assembled the following data pertaining to its two most popular products.Explanation / Answer
Chef Gourmet Inc. Blender Food Processor Details Per unit Direct Material 18 33 Direct Labor 12 27 Variable Machine OH 30 60 Total Variable cost 60 120 Machine Hrs required 1 2 Cost of outside purchase 60 114 Benefit from outside purchase/unit - 6 Annual demand 20,000 28,000 Optimal Policy Manfacture 20,000 Outside Purchase 28,000 If food processor direct material cost reduced by $18 per unit Details Per unit Direct Material 18 15 Direct Labor 12 27 Variable Machine OH 30 60 Total Variable cost 60 102 Machine Hrs required 1 2 Cost of outside purchase 60 114 Benefit from outside purchase/unit - (12) Annual demand 20,000 28,000 Optimal Policy Manufacture - 25,000 Outside Purchase 20,000 3,000 ( assuming contribution margin is proportional to cost) As blender has no loss in purchase, its full demand can be purchased and 25000 units of food processor may be manufactured using 50000 available machine hours and remaining 3000 may be purchased