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 $22. Management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.

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?

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

Explanation / Answer

Since Blender has more saving in manufacturing than purchasing, so we should produce blender 1st to the fullest.

Demand of Blender = 33,000 units

Consumption of machine in making blender = 33,000 x 1hr

.......................................................................= 33,000 hours

Machine hours left = 70,000 - 33,000

...............................= 37,000 hours

Demand of Food Processor = 38,000 units

No. of Food Processor made inhouse =  37,000 hours / 2

.............................................................= 18,500 units

No. of Food Processor purchased from outside = 38,000 - 18,500

............................................................................= 19,500 units

Particulars Blender Food Processor Direct Material $17 $22 Direct Labor $10 $38 Variable Manufacturing Overhead $22 $44 Total Variable Cost - (a) $49 $104 Purchase Cost - (b) $64 $132 Saving in Manufacturing over purchasing (b - a) $15 $28 No. of machine hour used (in hr) 1 2 Saving in Manufacturing over purchasing per machine hour $15 $14

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