A)

A manufacturer of television sets is considering ways to increase the firms plant capacity utilization because it has recently been operating at 70% of capacity. One proposal is to make a component which is currently being purchased for $75 per unit. Based on a study by the firms controller, the cost to produce the component is as follows:

Direct materials $24.00 Direct labor(3 hours@ $11.20 per hr) 33.60 Manufacturing overhead(applied based on direct labor hrs) 24.00 Total $81.60

The anticipated work activity for the year is 250,000 direct labor hours. Fixed manufacturing overhead for the year is budgeted at $1.75 million.

Required: You have been asked by the controller to determine if the component should be built internally or purchased. Calculate the per unit cost differential between making and buying the component.

B)

Sangdil Ltd makes two products, SS and TT. Variable cost per unit is as follows:

SS TT

Direct material Rs.6 Rs.18

Direct labour @ Rs.18 per hour Rs.36 Rs.18

Variable overhead Rs.6 Rs.6

Total variable cost Rs.48 Rs.48

The selling price per unit is Rs.84 for SS and Rs.66 for TT. During July 2001 the available direct labour is limited to 48,000 hours. Sales demand in July is expected to be 18,000 units for SS and 30,000 units for TT. Fixed cost is Rs. 200,000 per month.

Required:

Calculate the utilization of labour and material by each product.