Question

Tyson Corner Manufacturing produces two bearings: C15 and C19. Data regarding these two bearings follow.

	C15	C19
Machine hours required per unit	2.00	2.50
Standard cost per unit
Direct material	$2.50	$4.00
Direct labor	5.00	4.00
Manufacturing overhead:
Variable*	3.00	2.50
Fixed**	4.00	5.00
Total	$14.50	$15.50
* Applied on the basis of direct labor hours ** Applied on the basis of machine hours

The company requires 8,000 units of C15 and 11,000 units of C19. Recently, management decided to devote additional machine time to other product lines, resulting in only 31,000 machine hours per year that can be dedicated to production of the bearings. An outside company has offered to sell Tyson Corner the bearings at prices of $13.50 for C15 and $13.50 for C19.

Required:

A. Assume that Tyson Corner decided to produce all C15s and purchase C19s only as needed. Determine the number of C19s to be purchased.

B. Compute the net benefit to the company of manufacturing (rather than purchasing) a unit of C15. Repeat the calculation for a unit of C19. (Note: in answering this question, do not take into consideration any machine hours constraint).

C. Tyson Corner lacks sufficient machine time to produce all of the C15s and C19s needed. Which component (C15 or C19) should Tyson Corner manufacture first with the limited machine hours available? Why? Be sure to show all supporting computations.

Answer 1

Machine hours available	31000
Less: Machine hours for C15 8000*2	16000
Machine hours for C19	15000
Units to be manufactured 15000/2.50	6000
Annual requirement	11000
Less: Units to be manufactured	6000
C19 to purchase	5000	units
b.
	C15	C19
Direct material	2.5	4
Direct Labor	5	4
Variable overhead	3	2.5
Total variable cost	10.5	10.5
Purchase price quoted	13.50	13.50
Less: Total variable cost	10.5	10.5
Net benefit per unit of manufacturing	3	3
c.C15 should be produced first as machine hours per unit is lower and hence, net benefit of manufacturing per machine hour will be higher