Calen Company manufactures and sells three products in a factory of three departments. Both labor and machine time are applied to the products as they pass through each department. The nature of the machine processing and of the labor skills required in each department is such that neither machines nor labor can be switched from one department to another. Calen's management is attempting to plan its production schedule for the next several months. The planning is complicated by the fact that labor shortages exist in the community and some machines will be down several months for repairs. Following is information regarding available machine and labor time by department and the machine hours and direct labor hours required per unit of product. These data should be valid for at least the next six months. Department Monthly Capacity 2 3 3,700 3,000 Labor hours available 4,500 3,100 2,750 2,700 Machine hours available Input per Unit Product Produced 1 2 3 401 Labor hours 2 3 3 Machine hours Labor hours 2 402 2 Machine hours 1 403 Labor hours 2 2 2 Machine hours 2 2 1 Calen believes that the monthly demand for the next six months will be as follows: Product Units Sold 401 500 402 400 403 1.000 Inventory levels will not be increased or decreased during the next six months. The unit cost and price data for each product are as follows: Product 401 402 403 Unit costs: Direct material $ 7 13 $17 Direct labor 66 38 51 Variable overhead 27 20 25 Fixed overhead 15 10 32 Variable selling 3 4 Total unit cost si18 83 $129 Unit selling price $196 S123 $167

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Required:
1. Calculate the monthly requirement for machine hours and direct labor hours for producing
Products 401, 402, and 403 to determine whether or not the factory can meet the monthly
sales demand.
2. Determine the quantities of 401, 402, and 403 that should be produced monthly to maximize
profits. Prepare a schedule that shows the contribution to profits of your product mix.

3. Assume that the machine hours available in Department 3 are 1,500 instead of 2,700. Calculate the optimal monthly product mix using the graphing approach to linear programming.

Prepare a schedule that shows the contribution to profits from this optimal mix. (CMA
adapted)

Calen Company manufactures and sells three products in a factory of three departments. Both
labor and machine time are applied to the products as they pass through each department. The
nature of the machine processing and of the labor skills required in each department is such that
neither machines nor labor can be switched from one department to another.
Calen's management is attempting to plan its production schedule for the next several
months. The planning is complicated by the fact that labor shortages exist in the community
and some machines will be down several months for repairs.
Following is information regarding available machine and labor time by department and the
machine hours and direct labor hours required per unit of product. These data should be valid
for at least the next six months.
Department
Monthly Capacity
2
3
3,700
3,000
Labor hours available
4,500
3,100
2,750
2,700
Machine hours available
Input per Unit
Product Produced
1
2
3
401
Labor hours
2
3
3
Machine hours
Labor hours
2
402
2
Machine hours
1
403
Labor hours
2
2
2
Machine hours
2
2
1
Calen believes that the monthly demand for the next six months will be as follows:
Product
Units Sold
401
500
402
400
403
1.000

Inventory levels will not be increased or decreased during the next six months. The unit cost
and price data for each product are as follows:
Product
401
402
403
Unit costs:
Direct material
$ 7
13
$17
Direct labor
66
38
51
Variable overhead
27
20
25
Fixed overhead
15
10
32
Variable selling
3
4
Total unit cost
si18
83
$129
Unit selling price
$196
S123
$167

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