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 companys 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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