Kitchen Magician, Inc. has assembled the following data pertaining to its two mo
ID: 2594143 • Letter: K
Question
Kitchen Magician, 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 $32. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.
Required:
If 54,000 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 $20 per unit, how many units of each product should be manufactured? Purchased?
Blender Electric Mixer Direct material $ 20 $ 33 Direct labor 14 29 Manufacturing overhead @ $42 per machine hour 42 84 Cost if purchased from an outside supplier 62 107 Annual demand (units) 22,000 32,000Explanation / Answer
Machine hours available = 54000
Limiting factor = Machine hour
Blender
Electric Mixer
Direct material
20
33
Direct labor
14
29
Variable manufacturing overhead (42-32)
42-32 = 10
84-(32*2) = 20
Total variable cost
44
82
Cost if purchased from outside supplier
62
107
Savings
62 – 44 = 18
107-82 = 25
Machine hours required
1
2
Savings per machine hour
18/1 = 18
25/2 =12.5
Rank
1
2
Optimal Product Mix
Units produced/Purchased
Hours available
Remaining hours
Rank
Production of Blender
22000*1 = 22000
54000
54000-22000 = 32000
1
Production of Electric Mixer
32000/2 = 16000
0
0
2
Purchase of Electric Mixer
32000 – 16000 = 16000
0
0
3
If management able to reduce the direct material for an electric mixer to $20 per unit:
Limiting factor = Machine hour
Blender
Electric Mixer
Direct material
20
20
Direct labor
14
29
Variable manufacturing overhead (42-32)
42-32 = 10
84-(32*2) = 20
Total variable cost
44
69
Cost if purchased from outside supplier
62
107
Savings
62 – 44 = 18
107-69 = 38
Machine hours required
1
2
Savings per machine hour
18/1 = 18
38/2 =19
Rank
2
1
Optimal Product Mix
Units produced/Purchased
Hours available
Remaining hours
Rank
Production of Electric Mixer
54000/2 = 27000
54000
54000-54000 = 0
1
Purchase of Electric Mixer
32000 – 27000 = 5000
0
0
2
Purchase of Blender
22000
0
0
3
Blender
Electric Mixer
Direct material
20
33
Direct labor
14
29
Variable manufacturing overhead (42-32)
42-32 = 10
84-(32*2) = 20
Total variable cost
44
82
Cost if purchased from outside supplier
62
107
Savings
62 – 44 = 18
107-82 = 25
Machine hours required
1
2
Savings per machine hour
18/1 = 18
25/2 =12.5
Rank
1
2
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