Semicond is a small electronics company that manufactures tape recorders and radios. The per-unit labor costs, raw material costs, and selling price of each product are given in Table 10. On December 1, 2002, Semicond has available raw material that is sufficient to manufacture 100 tape recorders and 100 radios. On the same date, the company’s balance sheet is as shown in Table 11, and Semicond’s asset–liability ratio (called the current ratio)

is 20,000/10,000 2.

Semicond must determine how many tape recorders and radios should be produced during December. Demand is large enough to ensure that all goods produced will be sold.

All sales are on credit, however, and payment for goods produced in December will not

be received until February 1, 2003. During December, Semicond will collect $2,000 in accounts receivable, and Semicond must pay off $1,000 of the outstanding loan and a monthly rent of $1,000. On January 1, 2003, Semicond will receive a shipment of raw material worth $2,000, which will be paid for on February 1, 2003. Semicond’s management has decided that the cash balance on January 1, 2003, must be at least $4,000. Also, Semicond’s bank requires that the current ratio at the beginning of January be at least 2.
To maximize the contribution to profit from December production, (revenues to be received)
(variable production costs), what should Semicond produce during December?

Transcribed Image Text:

TABLE 10 Cost Information for Semicond Tape Recorder Radio Selling price $100 $90 Labor cost $ 50 $35 Raw material cost $ 30 $40 TABLE 11 Balance Sheet for Semicond Assets Liabilities Cash $10,000 Accounts receivable* $ 3,000 Inventory outstanding $ 7,000 Bank loan $10,000