Johnson Industries accepted a contract to provide 30,000 units of Product A and 20,000 units of Product
Question:
Johnson Industries accepted a contract to provide 30,000 units of Product A and 20,000 units of Product B. Johnson ’s staff developed the following information with regard to meeting this contract.
Product A Product B Total
Selling Price $75 $125
Variable costs $30 $48
Fixed overhead $1,600,000
Machine hours required 3 5
Machine hours available 160,000
Cost if outsourced $45 $60
Johnson ’s operations manager has identified the following alternatives. Which alternative should be recommended to Johnson ’s management?
a. Make 30,000 units of Product A, utilize the remaining capacity to make Product B, and outsource the remainder.
b. Make 25,000 units of Product A, utilize the remaining capacity to make Product B, and outsource the remainder.
c. Make 20,000 units of Product A, utilize the remaining capacity to make Product B, and outsource the remainder.
d. Rent additional capacity of 30,000 machine hours which will increase fixed costs by $150,000.
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello