Question

Kitchen Magician, Inc. has assembled the following data pertaining to its two most popular products.

	Blender				Electric Mixer
Direct material	$	22			$	32
Direct labor		15				43
Manufacturing overhead @ $54 per machine hour		54				108
Cost if purchased from an outside supplier		75				146
Annual demand (units)		38,000				45,000

Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $27. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.

Required:

1. If 80,000 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 $22 per unit, how many units of each product should be manufactured? Purchased?

3. If 80,000 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?

   With all other things constant, if management is able to reduce the direct material for an electric mixer to $22 per unit, how many units of each product should be manufactured? Purchased? Blender Electric Mixer Manufacture Purchase
   	Blender Electric Mixer Manufacture Purchase

Answer 1

The answer has been presented in the supporting sheets. All the parts has been solved with detailed explanation and formulas and format. For detailed answers refer to the supporting sheets.