Kitchen Magician, Inc. has assembled the following data pertaining to its two mo
ID: 2584623 • 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 $29. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.
1. If 84,000 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?
2. With all other things constant, if management is able to reduce the direct material for an electric mixer to $24 per unit, how many units of each product should be manufactured? Purchased?
Blender Electric Mixer Direct material $ 24 $ 28 Direct labor 17 45 Manufacturing overhead @ $58 per machine hour 58 116 Cost if purchased from an outside supplier 81 151 Annual demand (units) 40,000 49,000Explanation / Answer
1 Blender Electric Mixer Direct Material 24 28 Direct labor 17 45 Variable Manufacturing overhead 29 58 Total Variable cost 70 131 Cost if purchased from outside 81 151 Cost saving if manufacture 11 20 No. of machine hours required 1 2 Cost saving per hour 11 10 Ranking I II Manufacture possible with 84000 machine hours 40000 22000 To be purchased from outside 0 27000 Blender Electric Mixer Manufacture 40000 22000 Purchase 0 27000 2 Blender Electric Mixer Direct Material 24 24 Direct labor 17 45 Variable Manufacturing overhead 29 58 Total Variable cost 70 127 Cost if purchased from outside 81 151 Cost saving if manufacture 11 24 No. of machine hours required 1 2 Cost saving per hour 11 12 Ranking II I Manufacture possible with 84000 machine hours 0 42000 To be purchased from outside 40000 7000 Blender Electric Mixer Manufacture 0 42000 Purchase 40000 7000
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