Callahan Manufacturing has assembled the data appearing below pertaining to two products. Past experience has shown that the unavoidable fixed factory overhead included in the cost per machine hour averages $ 10. Direct labor is paid $ 18 per hour. Callahan has a policy of filling all sales orders, even if it means purchasing units from outside suppliers at the same selling price per unit that Callahan currently charges.

a. Assume Callahan Manufacturing has 50,000 machine hours available. What would be the optimal production of each product to maximize Callahan’s profits?
b. Refer to the original information. With all other things constant, if Callahan is able to reduce direct materials cost for the electric mixer by $ 6 per unit, what strategy should Callahan pursue?
c. Refer to the original information. Assume that an outbreak of swine flu has left Callahan shorthanded on direct labor personnel. Approximately one- half of the workforce will be out of work for one month. During the month, what strategy should Callahanpursue?

  • CreatedJune 03, 2014
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