Problem 14-44 Production Decisions; Limited Capacity LO 14-5, 14-6) Kitchen Magician, Inc., has assembled the following data pertaining to its two most popular products. Blender Electric Mixer Direct material $6 $11 Direct labor 4 9 Manufacturing overhead @ $16 per machine hour 16 32 Cost if purchased from an outside supplier Annual demand (units) 20 38 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 an electric mixer to $6 per unit, how many units of each product should be manufactured? Purchased? 3. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement 1 above. Show how the solution will change if the following information changes: The unit cost if purchased from an outside supplier is $22 for the blender and $40 for the electric mixer. (CMA, adapted)
Problem 14-44 Production Decisions; Limited Capacity LO 14-5, 14-6) Kitchen Magician, Inc., has assembled the following data pertaining to its two most popular products. Blender Electric Mixer Direct material $6 $11 Direct labor 4 9 Manufacturing overhead @ $16 per machine hour 16 32 Cost if purchased from an outside supplier Annual demand (units) 20 38 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 an electric mixer to $6 per unit, how many units of each product should be manufactured? Purchased? 3. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement 1 above. Show how the solution will change if the following information changes: The unit cost if purchased from an outside supplier is $22 for the blender and $40 for the electric mixer. (CMA, adapted)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 14-44 Production Decisions; Limited Capacity
LO 14-5, 14-6)
Kitchen Magician, Inc., has assembled the following data pertaining to its two most popular products.
Blender Electric Mixer
Direct material
$6
$11
Direct labor
4
9
Manufacturing overhead @ $16 per machine hour
16
32
Cost if purchased from an outside supplier
Annual demand (units)
20
38
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 an electric mixer to $6 per unit, how many units of
each product should be manufactured? Purchased?
3. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement 1 above. Show how the solution will change if the following
information changes: The unit cost if purchased from an outside supplier is $22 for the blender and $40 for the electric mixer.
(CMA, adapted)
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