Ltd produces four modes of Air Pods as follows: Air Pods standard, Air Pods Pro, Air Pods
Question:
Ltd produces four modes of Air Pods as follows: Air Pods standard, Air Pods Pro, Air Pods Galaxy and Air Pods Ultra. All products go through three Departments (D1, D2 and D3) but the time needed for each product at different departments varies. Data regarding the total demand for each product, the time needed for each product in each department, selling prices, fixed and variable costs for each product as well as available capacity (in terms of time) in each department (for last month) are presented as follows:
| Air Pods standard | Air Pods Pro | Air Pods Galaxy | Air Pods Ultra | |
| Total demand per month (units) | 1,200 | 1,200 | 3,500 | 3,200 |
| Selling price per unit | $120 | $180 | $220 | $300 |
| Unit variable cost per product as % of selling price | 40% | 50% | 55% | 60% |
| Unit fixed cost | $30 | $15 | $35 | $45 |
| Time needed in Department 1 per unit (minute) | 3 | 3 | 5 | 4 |
| Time needed in Department 2 per unit (minute) | 5 | 4 | 4 | 7 |
| Time needed in Department 3 per unit (minute) | 3 | 4 | 3 | 5 |
The total time available in each department for the month is 40,003 minutes. This is the same for all three departments.
Assume Ltd wanted to fulfil total demand for at least three products. What would be the maximum price that Arya Corp would pay to outsource one minute of production time for each of the three departments? Assume that one minute of outsourced time increases the capacity of the relevant department by one minute.
Assume Ltd wanted to fulfil total demand for all products. What would be the maximum price that Arya Corp would pay to outsource one minute of production time for each of the three departments? Assume that one minute of outsourced time increases the capacity of the relevant department by one minute.
Expert Answer:
Conclusion It is better to outsource 1197 minutes in department 2 at a maximum price of ... View the full answer
