1. Brittany Furniture manufactures two products: Futons and Recliners. The follo

Question

1. Brittany Furniture manufactures two products: Futons and Recliners. The following data are available:

The company can manufacture two futons per machine hour and one recliner per machine hour. The company's production capacity is 900 machine hours per month. To maximize profits, what product and how many units should the company produce in a month?

Select one:

a. 900 recliners

b. 1,800 futons and 900 recliners

c. 1,800 futons

d. 700 futons and 360 recliners

2. Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $120,000, which includes fixed costs of $60,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $3.00 per unit, and avoid 30% of the fixed costs.

If Harvey Automobiles makes the part, how much will its operating income be?

Select one:

a. $42,000 greater than if the company bought the part

b. $42,000 less than if the company bought the part

c. $78,000 greater than if the company bought the part

d. $78,000 less than if the company bought the part

3. Cuyahoga Valley Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 40,000 parts is $138,000, which includes fixed costs of $68,000 and variable costs of $70,000. By outsourcing the part, the company can avoid 30% of the fixed costs.

If Cuyahoga Valley Bicycles buys the part, what is the most Cuyahoga Valley Bicycles can spend per unit so that operating income equals the operating income from making the part?

Select one:

a. $1.33

b. $2.26

c. $4.64

d. $2.33

futons recliners sales price $500 $480 variable costs $325 $120

Explanation / Answer

Part 1)

To determine the optimal level of production, we need to calculate the contribution per machine hour for each type of product. The contribution per machine hour is calculated as below:

Based on the above calculations, it can be seen that recliners provide higher contribution per machine hour. Therefore, we will produce 900 recliners (as there is no limit on the production of a particular type of product).

Answer is 900 Recliners (which is Option A)

___________

Part 2)

The profit/loss is shown with the use of following table:

Based on the above calculations, it can be seen that if the company makes the product, its operating income will increase by $42,000 (120,000 - 78,000) because of lower value of total cost.

Answer is $42,000 greater than if the company bought the part (which is Option A).

___________

Part 3)

We need to equate the total cost equations under make an buy scenarios to arrive at the buying price. The equations are as follows:

Let X be the buying price.

Make = 70,000 (Variable Cost) + 68,000 (Fixed Cost)

Buy = 40,000X + 68,000*70% [Unavoidable Fixed Cost]

Upon equation, we get,

138,000 = 40,000X + 47,600

X (Buying Price) = (138,000 - 47,600)/40,000 = $2.26

Answer is $2.26 (which is Option B)

Futons Recliners Sales Price 500 480 Variable Costs 325 120 Contribution Per Unit (A) 175 360 Number of Machine Hours Per Unit (B) 0.5 1 Contribution Per Machine Hour (A/B) 350 360 Rank 2 1

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.