Question

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

	Blender				Electric Mixer
Direct material	$	17			$	26
Direct labor		10				38
Manufacturing overhead @ $44 per machine hour		44				88
Cost if purchased from an outside supplier		64				132
Annual demand (units)		33,000				38,000

Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $22. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.

Required:

1. If 70,000 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 $17 per unit, how many units of each product should be manufactured? Purchased?

Questions I need answered by chegg :)

If 70,000 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 $17 per unit, how many units of each product should be manufactured? Purchased?

	Blender Electric Mixer Manufacture Purchase

Answer 1

Answer 1

	Blender	Electric Mixer
Manufacture	33000	18500
Purchase	0	19500

Detailed workings for answer 1

			Blender	Electric Mixer
Direct Material			17	26
Direct labor			10	38
Variable Manufacturing overhead			22	44
Total Variable cost			49	108
Cost if purchased from outside			64	132
Cost saving if manufacture			15	24
No. of machine hours required			1	2
Cost saving per hour			15	12
Ranking			1	2
So Blender will be produced first
Hours required for 33000 units of blender	=33000*1			33000	hours
Hours left for Mixer				37000
Units produced for mixer	=37000/2			18500

Answer 2

	Blender	Electric Mixer
Manufacture	0	35000
Purchase	33000	3000

Detailed workings for answer 2

			Blender	Electric Mixer
Direct Material			17	17
Direct labor			10	38
Variable Manufacturing overhead			22	44
Total Variable cost			49	99
Cost if purchased from outside			64	132
Cost saving if manufacture			15	33
No. of machine hours required			1	2
Cost saving per hour			15	16.5
Ranking			2	1
So Mixer will be produced first
Hours available				70000 hours
Units of mixer to be produced	=70000/2			35000	Units
Units of mixer to be purchased from market				3000	Units
Units of Blender to be purchases from market				33000	Units