Kitchen Magician, Inc., has assembled the following data pertaining to its two most popular products. Blender Mixer Direct material $ 6 $ 11 Direct labor 4 9 Manufacturing overhead @ $16 per machine hour 16 32 Cost if purchased from an outside supplier 20 38 Annual demand (units) 20,000 28,000 Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $10. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Required: 1. If 50,000 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 a mixer to $6 per unit, how many units of each product should be manufactured? Purchased?
Kitchen Magician, Inc., has assembled the following data pertaining to its two most popular products. Blender Mixer Direct material $ 6 $ 11 Direct labor 4 9 Manufacturing overhead @ $16 per machine hour 16 32 Cost if purchased from an outside supplier 20 38 Annual demand (units) 20,000 28,000 Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $10. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Required: 1. If 50,000 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 a mixer to $6 per unit, how many units of each product should be manufactured? Purchased?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Kitchen Magician, Inc., has assembled the following data pertaining to its two most popular products.
| Blender | Mixer | |||||
| Direct material | $ | 6 | $ | 11 | ||
| Direct labor | 4 | 9 | ||||
| Manufacturing overhead @ $16 per machine hour | 16 | 32 | ||||
| Cost if purchased from an outside supplier | 20 | 38 | ||||
| Annual demand (units) | 20,000 | 28,000 | ||||
Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $10. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.
Required:
1. If 50,000 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 a mixer to $6 per unit, how many units of each product should be manufactured? Purchased?
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Step 1: General understanding of Make or Buy Decision
VIEWStep 2: Computation of Machine hour required for per unit and Mfg. Variable overhead
VIEWStep 3: Computation of units of each product manufacture and purchased for Part 1
VIEWStep 4: Computation of units of each product manufacture and purchased for Part 2
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