JJ Inc. produces a number of specialized containers. In particular, it produces
ID: 2445218 • Letter: J
Question
JJ Inc. produces a number of specialized containers. In particular, it produces a product called WP that is a very special container that can be used to store toxic waste. This product necessitates the use of an automatic precision welding machine which needs very little labor time to operate it and once it is set up it pretty much runs on its own. A total of 2000 hours are available on this welding machine. Each unit of WP uses 0.8 hours (i.e. 48 minutes) of welding machine time. At present, this is the only use for the welding machine. The following further information is available.
Management believes that 3,000 units of WP can be sold per year. However, the precision welding machine is the limiting factor. Their production manager suggests that making mountain bike frames would be a better use of this welding machine since each frame would only require 0.2 hours (i.e. 12 minutes) of welding time on the precision welding machine and some additional assembly. After some research they find out that JJ can sell 3,500 mountain bike frames per year.
The following further information is available about WP and the mountain bike frames
Particulars
WP
Mountain Bike Frame
Selling Price
154.00
65.00
Unit Costs:
Direct materials
44.50
17.50
Direct labor (@$18 per hour)
4.50
22.50
Manufacturing Overhead
3.15
15.75
Selling and Administration Overhead
15.40
6.50
Total Unit costs
67.55
62.25
The following further information is available:
Most of the manufacturing overhead is for things such as rent on the factory, production manager’s salary, wages to mechanics, etc. However, there is a portion that varies based on the output. This variable portion amounts to $1.05 per unit of WP and $0.60 per mountain bike frame.
Selling and administration overhead is allocated to products based on revenues. However, a large portion of this overhead will be incurred regardless of the product mix and will not change even if additional sales are made beyond the current level. The variable portion amounts to $0.85 per unit of WP and $0.40 per mountain bike frame sold.
Required:
a. What is the optimal product mix of mountain bike frames and WP?
b. The production manager then points out that there is an external supplier who is willing to supply the needed quantities of WP at a cost of $120 per unit. Based on this additional information together with the information given in part a, determine the quantities of:
i) WP to be produced ____________
ii) WP to be bought _____________
iii) Mountain Bike frames produced ____________
that would maximize the profit for JJ
c. At this point, the HR manager points out that all employees are paid for 40 hours a week, even if they are idle for part of or all of the time and none of the employees are ever laid off. All the possible production options under consideration can be fully staffed without incurring any overtime. Does this information change your answers to parts (a) and (b) above? If yes, how? If not, why not?
Particulars
WP
Mountain Bike Frame
Selling Price
154.00
65.00
Unit Costs:
Direct materials
44.50
17.50
Direct labor (@$18 per hour)
4.50
22.50
Manufacturing Overhead
3.15
15.75
Selling and Administration Overhead
15.40
6.50
Total Unit costs
67.55
62.25
Explanation / Answer
a, 67.55
b i 3500
ii 120
iii
In a manufactring industries we ascertain fisxe and varible cost we heade to floate accordingely to over demand and supply
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.