Solution to lecture-5 illustration question

# Solution to lecture-5 illustration question - Conclusion...

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SOLUTION TO LECTURE-5 ILLUSTRATION QUESTION 14-46 1. Blender Food Processor Unit cost if purchased from an outside supplier . ... \$60 \$114 Incremental unit cost if manufactured: Direct material . .. \$18 \$ 33 Direct labor . ....... 12 27 Variable overhead \$48 – \$30 per hour fixed . ............ 18 \$96 – (2)(\$30 per hour fixed) . ..... 36 Total . ............... \$48 \$ 96 Unit cost savings if manufactured . ...... \$12 \$ 18 Machine hours required per unit . .. 1 2 Cost savings per machine hour if manufactured \$12 ÷ 1 hour . ..... \$12 \$18 ÷ 2 hours . .... \$ 9 Therefore, each machine hour devoted to the production of blenders saves the company more than a machine hour devoted to food processor production. Machine hours available . ................................................ 50,000 Machine hours needed to manufacture 20,000 blenders . . 20,000

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Remaining machine hours . .............................................. 30,000 Number of food processors to be produced (30,000 ÷ 2) . 15,000
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Unformatted text preview: Conclusion: Manufacture. ........ 20,000 blenders Manufacture. .............. 15,000 food processors Purchase 13,000 food processors 2. If the company’s management team is able to reduce the direct material cost per food processor to \$18 (\$15 less than previously assumed), then the cost savings from manufacturing a food processor are \$33 per unit (\$18 savings computed in requirement (1) plus \$15 reduction in material cost): Blender Food Processor New unit cost savings if manufactured . ...... \$12.00 \$33.00 Machine hours required per unit . .. 1 MH 2 MH Cost savings per machine hour if manufactured \$12 ÷ 1 hour . ..... \$12.00 \$33 ÷ 2 hours . .... \$16.50 Therefore, devote all 50,000 hours to the production of 25,000 food processors. Conclusion: Manufacture: 25,000 food processors Purchase: 3,000 food processors and 20,000 blenders...
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Solution to lecture-5 illustration question - Conclusion...

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