The contribution margin per batch of dellas delight

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The contribution margin per batch of Della’s Delight is $30 0. The contribution margin per batch of Bonny s Bourbon is $250. The LP formulation for the decision is: Maximize $300D + $250 B Subject to 30D + 15B 660 (Mixing Department constraint) 15B 270 (Filling Department constraint) 10D + 15B 300 (Baking Department constraint) 2. Solution Exhibit 11-40 presents a graphical summary of the relationships. The optimal corner is the point (18, 8) i.e., 18 batches of Della’s Delights and 8 of Bonny s Bourbons. SOLUTION EXHIBIT 11-40 Graphic Solution to Find Optimal Mix, Della Simpson, Inc. 3, 18 0, 44 22, 0 Della Simpson Production Model 0 5 10 15 20 25 30 35 40 45 50 0 5 10 15 20 25 30 35 40 D (batches of Della's Delight) B (batches of Bonny's Bourbons) Filling Dept. Constraint Mixing Dept. Constraint Baking Dept. Constraint Equal Contribution Margin Lines Optimal Corner (18,8) Feasible Region
We next calculate the optimal production mix using the trial-and-error method. 18 8 = $0
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11-37 11-41 (30 min.) Make versus buy, ethics. 1. Direct materials per unit = $195,000 30,000 = 6.50 Direct manufacturing labor per unit = $120,000 30,000 = $4 Variable manufacturing overhead for 30,000 units = 40% of $225,000 = $90,000 Variable manufacturing overhead as a percentage of direct manufacturing labor = $90,000 $120,000 = 75% Fixed manufacturing overhead = 60% of $225,000 = $135,000 SOLUTION EXHIBIT 11-41A Manufacturing Costs for 30,000 Units (1) Manufacturing Costs for 32,000 Units with Porter Estimates (2) Purchase Costs for 32,000 Units with Porter Estimates (3) Purchasing costs ($17.30 per unit 32,000) $553,600 Direct materials ($6.50 30,000; 32,000) $195,000 $208,000 Direct manufacturing labor ($4 30,000; 32,000) 120,000 128,000 Plant space rental (or penalty to terminate) 84,000 84,000 10,000 Equipment leasing (or penalty to terminate) 36,000 36,000 5,000 Variable overhead (75% of direct manufacturing labor) 90,000 96,000 Fixed manufacturing overhead 135,000 135,000 135,000 Total manufacturing or purchasing costs $660,000 $687,000 $703,600 On the basis of Porter s estimates, Solution Exhibit 11-41A suggests that in 2006, the cost to purchase 32,000 units of MTR-2000 will be $703,600, which is greater than the estimated $687,000 costs to manufacture MTR-2000 in-house. Based solely on these financial results, the 32,000 units of MTR-2000 for 2006 should be manufactured in-house.
11-38 2. SOLUTION EXHIBIT 11-41B Manufacturing Costs for 32,000 Units with

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