Kitchen Magician, Inc. has assembled the following data pertaining to its two most popular products.

	Blender	Electric Mixer
Direct Material	$6	$11
Direct Labor	4	9
Manufacturing Overhead @ $16 per machine hour	16	32
Cost if purchased from an outside supplier	20	38
Annual demand (units)	20,000	28,000

Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $32. Kitchen Magician’s management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.

1. If 50,000 machine hours are available, and management desires to follow an optimal strategy, how many units of each product should the firm manufacture? How many units of each product should be purchased?

2. With all other things constant, if management is able to reduce the direct material for an electric mixer to $6 per unit, how many units of each product should be manufactured? Purchased?

Answer rating: 100% (QA)

1 The companys management policy is to fill all sales orders even if it means purchasing units from ... View the full answer