Kitchen Magician, Inc. has assembled the following data pertaining to its two mo
ID: 2533409 • Letter: K
Question
Kitchen Magician, Inc. has assembled the following data pertaining to its two most popular products.
Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $26. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.
Required:
If 78,000 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 an electric mixer to $21 per unit, how many units of each product should be manufactured? Purchased?
Blender Electric Mixer Direct material $ 21 $ 30 Direct labor 14 42 Manufacturing overhead @ $52 per machine hour 52 104 Cost if purchased from an outside supplier 71 140 Annual demand (units) 37,000 46,000Explanation / Answer
Req 1 Blender Mixer Savings in cost if manufactured inside 71 140 Less: Cost of manufacture-Vvariable Material 21 30 labour 14 42 Variable manufacturing overheads 26 52 Contribution margin per unit 10 16 Divide: Machine hour per unit 1 2 (52/52) 104/52) Contribution margin per MH 10 8 Ranking I II Total Machine hours 78,000 Less: Hours used in Blender (37000 units @1 hr) 37,000 Machne hours available for Mixer 41,000 Uunits that can be produced of Mixer 20,500 (41000 hours / 2 hours) Units of Mixer to be bought (46000-20500) 25,500 Blender Mixer Units to be produced 37,000 20,500 Units to be purchase 25500 Req 2: Blender Mixer Savings in cost if manufactured inside 71 140 Less: Cost of manufacture-Vvariable Material 21 21 labour 14 42 Variable manufacturing overheads 26 52 Contribution margin per unit 10 25 Divide: Machine hour per unit 1 2 (52/52) 104/52) Contribution margin per MH 10 13 Ranking II I Total Machine hours 78,000 Required hours fr 46000 units of Mixer @2 hours 92,000 Total Hours used in Mixer 78,000 Number of units produced of Mixer (78000/2) 37,000 Number of Units purchase of mixer (46000-37000) 9000 Number of Units purchase of Blender 37,000 Blender Mixer Units to be produced 37,000 Units to be purchase 37,000 9000
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