Question: (20 points) AAA manufactures both component sets and fully finished products. For a specific type of products, AAA can sell the component sets to an

(20 points) AAA manufactures both component sets

(20 points) AAA manufactures both component sets and fully finished products. For a specific type of products, AAA can sell the component sets to an assembly company for $55 per set, or assemble the products itself. The finished products can be sold for $75 each. AAA has a total capacity of 300,000 hours, which could be used for both producing components and assembling. One capacity hour can be used to produce 60 sets of components or to assemble 30 units of products (not including components). All the related costs for the manufacturing and assembling are listed below. No other costs and tax are considered. The manufacturing overhead cost is fixed and allocated to the units produced based on their production time. We assume that the demand is high enough so that the manufacturing capacity is always utilized fully. The direct materials, direct labor and manufacturing overhead for each set of components are $9.10, $7.50 and $3.90, respectively. The additional direct materials, direct labor and manufacturing overhead for each unit of assembly are $3.90, $2.45 and $7.80, respectively. (Hint: each capacity hour can only make 20 units of finished products, 20 minutes for components and 40 minutes for assembly) (1) AAA executives decide to assemble the products themselves instead of selling the component sets. With the expected sale price of $75 per unit, is this a good decision? (Hint: use contribution margin) (2) What is the lowest price for the completely assembled (finished) products that will be acceptable for the executives' decision? (Hint: the total contribution will be the same for both options) (3) The manufacturing overhead cost in (1) and (2) is a fixed cost allocated to each unit. Suppose that 50% of that fixed overhead cost is variable. Please reevaluate your answers in (1) and (2) (Hint: calculate the original total manufacturing overhead cost first, and then convert 50% of that to the variable cost which should be included in calculating contribution margin)

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