1. Acme Corp. uses 14,000 units of a part in its production process. The costs to make a part are:

Direct material $11

Direct labor $29

Variable overhead $16

Applied fixed overhead $30

Acme has received a quote of $58 from a potential supplier for this part. If Acme buys the part, 68 percent of the applied fixed overhead would continue.

1. Would Acme would be better off to make or buy the part?

2. How much would be the total cost savings if Acme goes the route (making or buying) that you suggest?

7B. How much of each product to produce?

Acme Corp. makes three products in a single facility. These products have the following unit product costs:

Product A Product B Product C

Direct material $33.00 $31.00 $24.00

Direct labor 12.00 14.00 15.00

Variable mftg. overhead 8.00 9.00 10.00

Fixed mftg. overhead 21.00 25.00 23.00

Unit cost $74.00 $79.00 $72.00

Additional data concerning these products are listed below:

Product A Product B Product C

Mixing minutes per unit 3.5 6 2.5

Selling price per unit $78.00 $88.00 $89.00

Variable selling cost per unit $5.00 $7.00 $8.00

Monthly demand in units 1,600 3,400 3,900 The mixing machines are potentially the constraint in the production facility. A total of 26,500 minutes are available per month on these machines.

Direct labor is a variable cost in this company.

1. How many minutes of mixing machine time would be required to satisfy demand for all three products?

2. How much of each product should Acme produce, based on available minutes, to maximize net operating income? (Round down to the nearest whole unit.)

3. Assuming demand for Acmes three products exceeds the current capacity of mixing machine minutes, how much extra in total should Acme be willing to pay to obtain the necessary mixing machines minutes needed to meet to meet total demand for its products?