Chef Gourmet, Inc., has assembled the following data pertaining to its two most

Question

Chef Gourmet, Inc., has assembled the following data pertaining to its two most popular products. Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $23. Management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. 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? With all other things constant, if management is able to reduce the direct material for a food processor to $18 per unit, how many units of each product should be manufactured? Purchased?

Explanation / Answer

Particulars Amount($) Amount($) Cost of purchase 65 133 Direct materials 18 28 Direct Labor 11 39 Variable manufacturing ovarheads 23 46 Total Variable cost 52 113 Benefit 13 20 Machine hours 1 2 Total Variable cost per machine hour 13 10 Hours available @72,000 Rank 1 Rank 2 Demand 34000 40000 Hours utilized 34000 hours 38000 Hours Manufacture 34000 units 19000 units Purchase 0 21000 Particulars Amount($) Amount($) Cost of purchase 65 133 Direct materials 18 18 Direct Labor 11 39 Variable manufacturing ovarheads 23 46 Total Variable cost 52 103 Benefit 13 30 Machine hours 2 1 Total Variable cost per machine hour 6.5 30 Hours available @72,000 Rank 1 Rank 2 Demand 34000 40000 Hours utilized 0 72000 Hours Manufacture 0 36000 Purchase 34000 4000

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