Required: A. Assume that Hayes decided to produce all of Product A\'s and purcha
ID: 2544767 • Letter: R
Question
Required: A. Assume that Hayes decided to produce all of Product A's and purchase Product B's only as needed. Determine the number of Product B’s to be purchased. B. Compute the net benefit to the company of manufacturing (rather than purchasing) a unit of Product A. Repeat the calculation for a unit of Product B. (Note: in answering this question, do not take into consideration any machine hours constraint). C. Hayes lacks sufficient machine time to produce all of the Product A's and Product B's needed. Which product (A or B) should Hayes manufacture first with the limited machine hours available? Why? Be sure to show all supporting computations.Explanation / Answer
A. Computation of No. of Product B to be Purchased
Product A
Product B
Machine Hour Required Per Unit (1)
2
2.5
Required Unit (2)
8000 Unit
11000 Unit
No. of Hours Required
16000
27500
Allocation of total 31000 Hours Available (3)
16000
15000
No. of Unit can be produced with Available Hour ( 4= 3/1)
8000 Unit
6000 Unit
Product A Unit need to be Purchased (2-4)
-
5000 Unit
B. Computation of Net benefit to the company
Product A
Product B
Direct Material
$2.50
$4.00
Direct Labour
$5.00
$4.00
Variable Manufacturing Overhead
$3.00
$2.50
Total Variable cost /unit
$10.50
$10.50
Price offered by Outside company
$13.50
$13.50
Incremental benefit/Unit by Manufacturing rather Procure from outside
$3.00
$3.00
Required unit
8000 Unit
11000 unit
Total Incremental Benefit
$24,000.00
$33,000.00
Note: Fixed Considered as Sunk cost , hence not considered
C. Manufacture of Product A or B
Product A
Product B
Incremental benefit/Unit by Manufacturing rather Procure from outside
$3.00
$3.00
Machine Hours Require/unit, if Manufacture ( in Hours)
2
2.5
Incremental benefit for 1 unit/per machine Hour
$1.50
$1.20
It's more beneficial to manufacture Product A first because $1.50/ Machine Hour as compare with product B where $1.20/machine Hour can be earned by using 1 machine Hour. Hence it's advisable to first utilize all Machine capacity in manufacture Product A and further remaining machine hour can be utilized for manufacturing Product B.
A. Computation of No. of Product B to be Purchased
Product A
Product B
Machine Hour Required Per Unit (1)
2
2.5
Required Unit (2)
8000 Unit
11000 Unit
No. of Hours Required
16000
27500
Allocation of total 31000 Hours Available (3)
16000
15000
No. of Unit can be produced with Available Hour ( 4= 3/1)
8000 Unit
6000 Unit
Product A Unit need to be Purchased (2-4)
-
5000 Unit
B. Computation of Net benefit to the company
Product A
Product B
Direct Material
$2.50
$4.00
Direct Labour
$5.00
$4.00
Variable Manufacturing Overhead
$3.00
$2.50
Total Variable cost /unit
$10.50
$10.50
Price offered by Outside company
$13.50
$13.50
Incremental benefit/Unit by Manufacturing rather Procure from outside
$3.00
$3.00
Required unit
8000 Unit
11000 unit
Total Incremental Benefit
$24,000.00
$33,000.00
Note: Fixed Considered as Sunk cost , hence not considered
C. Manufacture of Product A or B
Product A
Product B
Incremental benefit/Unit by Manufacturing rather Procure from outside
$3.00
$3.00
Machine Hours Require/unit, if Manufacture ( in Hours)
2
2.5
Incremental benefit for 1 unit/per machine Hour
$1.50
$1.20
It's more beneficial to manufacture Product A first because $1.50/ Machine Hour as compare with product B where $1.20/machine Hour can be earned by using 1 machine Hour. Hence it's advisable to first utilize all Machine capacity in manufacture Product A and further remaining machine hour can be utilized for manufacturing Product B.
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