Question

TI Blender Electric Mixer $ $ Direct material 15 28 Direct labor 36 Manufacturing overhead@ $40 per machine hour Cost if purchased from an outside supplier Annual demand (units) 40 80 62 130 31,000 40,000 Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $20. Kitchen Magician's management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Required: 1. If 66,000 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 $15 per unit, how many units of each product should be manufactured? Purchased?

Answer 1

1)
		Blender	Electric Mixer
	Cost Of Purchase	62	130
	Less:
	Direct Material	15	28
	Direct Labor	8	36
	Manufacturing Overhead	20	40
	(variable )
	Saving If Manufacture	19	26
	No Of Direct Labor hour per unit	1	2
	Saving Per labor hour	19	13
	Proirity	I	II
	Annual Demand	31000	40000
	Required Hours	31000
	Available Hours		35000
			(66000-31000)
	No Of Units Can Be Manufactured	31000	17500
		(31000 Hrs/1 per Hr)	(35000 Hrs/2 Per hr)
	Units Need To be Purchased		22500
			(40000-17500)
2)		Blender	Electric Mixer
	Cost Of Purchase	62	130
	Less:
	Direct Material	15	15
	Direct Labor	8	36
	Manufacturing Overhead	20	40
	(variable )
	Saving If Manufacture	19	39
	No Of Direct Labor hour per unit	1	2
	Saving Per labor hour	19	19.5
	Proirity	II	I
	Annual Demand		40000
	Units Can Be Manufactured		33000
			(66000/2)
	Units To Be Purchased	31000	7000
			(40000-33000)