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 $29. Management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.

If 84,000 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 $24 per unit, how many units of each product should be manufactured? Purchased?

      

The following data pertain to Pensacola Division’s most recent year of operations.

Compute Pensacola Division’s sales margin, capital turnover, and return on investment for the year. (Round "Capital turnover" answer to 2 decimal places. Round your "Percentage" answers to 2 decimal places (i.e., .1234 should be entered as 12.34))

Blender Food Processor   Direct material $ 24 $ 28   Direct labor 17 45   Manufacturing overhead @ $58 per machine hour 58 116   Cost if purchased from an outside supplier 81 151   Annual demand (units) 40,000 49,000

Explanation / Answer

1) Since No. of hours is the constraint, we need to compute savings per machine hour to decide how many units of which machine should be manufactured or purchased. From the manufacturing overhead per hour rate, we can conclude that it takes 1 hour ($58 / $58 per hr) to manufacture a blender and takes 2 hours ($116 / $58 per hr) to manufacture a Food processor.

Therefore, we should try to manufacture blenders as much as we can and if hours are still remaining, then manufacture food processors.

2)

Therefore, now we should try to manufacture food processors as much as we can and if hours are still remaining, then manufacture blenders.

3) Sales margin = Income / Sales revenue = 4,350,000 / 58,000,000 = 0.075 or 7.50%

Capital turnover = Sales / average capital invested = $58,000,000 / $20,000,000 = 2.90

Return on investment = Income / Average capital invested = $4,350,000 / $20,000,000 = 0.2175 or 21.75%

Savings per machine hour Particulars Blender Food Processor Direct material cost $24 $28 Direct labor cost $17 $45 Variable manufacturing overhead ($58 - $29) = $29 ($116 - $29 x 2) = $58 Total variable costs / Relevant manufacturing costs $70 $131 Cost of purchasing $81 $151 Savings in manufacture over purchase $11 $20 Hours per unit 1 2 Savings per hour $11 $10 Ranking 1st 2nd

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