Question

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

	Blender				Electric Mixer
Direct material	$	18			$	28
Direct labor		11				39
Manufacturing overhead @ $46 per machine hour		46				92
Cost if purchased from an outside supplier		65				133
Annual demand (units)		34,000				40,000

Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $23. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.

Required:

1. If 72,000 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 $18 per unit, how many units of each product should be manufactured? Purchased?

Questions I need answered by chegg :)

If 72,000 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?

	Blender Electric Mixer Manufacture Purchase

With all other things constant, if management is able to reduce the direct material for an electric mixer to $18 per unit, how many units of each product should be manufactured? Purchased?

	Blender Electric Mixer Manufacture Purchase

Answer 1

1						Blender	Mixer
	Cost [f purchased from an outside supplier					65	133
	Less:
	Direct material					18	28
	Direct labor					11	39
	Manufacturing overhead				(Note:1)	23	46
	Total variable costs					52	113
	Cost savings					13	20
	Machine hours per unit					1	2
	Cost savings per machine hour					13	10
	Rank					1	2
	Conclusion:
	Available machine hours					72000	Hours
	Machine hours needed for 34000 blenders				(34000*1)	34000	Hours
	Balance MH available					38000	Hours
	Mixers that can be produced				(38000/2)	19000	Units
	Additional mixers to be purchased
	(40000-19000)					21000	Units
			Blender	Mixer
	Manufacture		34000	19000
	Purchase			21000
	Note:1
						Blender	Mixer
	Manufacturing overhead				a	46	92
	Manufacturing OH rate per machine hour				b	46	46
	Machine hours per unit				c=a/b	1	2
	Variable manufacturing overhead per unit
						Blender	Mixer
	Manufacturing overhead				a	46	92
	Less: Fixed cost		($ 23 per machine hour)			23	46
						(23*1)	(23*2)
	Variable manufacturing overhead					23	46
2						Blender	Mixer
	Cost of purchased from an outside supplier					65	133
	Less:
	Direct material					18	18
	Direct labor					11	39
	Manufacturing overhead				(Note:1)	23	46
	Total variable costs					52	103
	Cost savings					13	30
	Machine hours per unit					1	2
	Cost savings per machine hour					13	15
	Rank					2	1
	Conclusion:
	Available machine hours					75000	Hours
	Mixers that can be produced				(75000/2)	37500	Units
	Additional mixers to be purchased				(40000-37500)	2500	Units
	Blenders that can be purchased					34000	Units
			Blender	Mixer
	Manufacture			37500
	Purchase		34000	2500