Question

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	$	22			$	37
Direct labor		16				29
Manufacturing overhead @ $46 per machine hour		46				92
Cost if purchased from an outside supplier		64				109
Annual demand (units)		24,000				36,000

Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $34. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.

Required:

If 58,000 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?

Answer 1

CM per MH
			Blender	Mixer
Selling price			64	109
Less: Variable cost
Material			22	37
Labour			16	29
Variable Oh			12	24
CM per unit			14	19
Divide: MH per unit			1	2
CM per MH			14	9.5
RNKING			I	II
TotalMH available			58000
Less: Blender produced			24000
(24000*1)
Hours remaining for Mixer			34000
Divide: MH per unit			2
Units of mixer produced			17000
Units of Mixer purchased			19000
	(36000-17000)
Req 2.
CM per MH
			Blender	Mixer
Selling price			64	109
Less: Variable cost
Material			22	22
Labour			16	29
Variable Oh			12	24
CM per unit			14	34
Divide: MH per unit			1	2
CM per MH			14	17
RNKING			II	I
TotalMH available			58000
Less: Mixer produced			29000
(58000/2)
Numbr of Blender produced			0
Number of Mixer produced			29000
Number of Blender purchased			24000
Number of Mixer purchased			7000