McCormack Company (the company) makes two products in a single facility.The two products have the followingvariablecosts:

Product AProduct BVariable manufacturing cost per unit

$37.20

$46.20

Variable packaging cost per unit

$2.40

$2.90

Additional data concerning these products are listed below.

Product AProduct BMixing minutes per unit

1.7

1.8

Selling price per unit*

$76.10

$87.50

Monthly demand in units

2,000

3,120

* The selling price per unit of both products is expected to rise significantly in about 2 years time.

A total of 9,000 minutes are available during the current month on the mixing machine.This machine is used to produce both products.

The company does not have any inventory at the start of the current month.

A.Based on quantitative factors alone, how many units of each product should be produced in the current month to maximise the company's profits? Show all calculations and round your final answerDOWNto whole units.[6 Marks]

B.Based on both quantitative and qualitative factors,assume McCormack decides to prioritise the production and sale of Product A in the current month.

An external supplier then approaches the company with an offer to supply exactly 12 units of Product A during the current month. In other words, the supplier is unable to supply more than 12 or less than 12 units of Product A to McCormack. The supplier has also agreed to neatly package these 12 units, saving the company from incurring the packaging cost of $2.40/ unit. Therefore, apart from the price paid to the external supplier, there is NO ADDITIONAL cost that needs to be incurred by the company in order to sell the units that are purchased externally.

Calculate the supplier's price per unit that would cause the company to be indifferent between purchasing and not purchasing the 12 units of Product A from the supplier i.e., the highest price per unit the company will be willing to pay the supplier.Consider only quantitative factors. Show all calculations.[4 marks]

C.What are two qualitative factors that McCormack should consider when deciding whether to purchase the 12 units ofProduct A from the external supplier?[3 marks]

Answer rating: 100% (QA)

A To maximize profits based on quantitative factors alone we need to determine the optimal production quantities for both products A and B 1 Calculate ... View the full answer