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Sam Inc. manufactures a variety of battery-powered hand tools. The company has assembled the following data...

Sam Inc. manufactures a variety of battery-powered hand tools. The company has assembled the following data pertaining to its two most popular products:

Drill

Saw

Direct Materials

$60

110

Direct Labour

40

90

Manufacturing Overhead*

160

320

Cost if purchased from outside supplier

200

380

Annual Demand in units

200,000

220,000

* The manufacturing overhead is applied at a rate of $80 per machine hour used in production. Twenty-five percent of the MOH is variable in nature and the remaining seventy-five percent is fixed. Makita only has 500,000 hours of machine time available for making these two tools this year. When Makita cannot satisfy the demand for its products, the company will buy units from an outside supplier.

Required:

How should Sam use this year’s limited supply of machine-hours? How many of each product should they make themselves and how many units should be purchased from the outside supplier?

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Expert Solution

ekkarill92 answered 2 years ago
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