. A company makes 2,000 widgets. The costs to make a widget are

DM 10 DL 4 VARIABLE MOH 6 FIXED MOH 10 $6 CAN BE AVOIDED IF THE WIDGETS ARE PURCHASED 30

If the units are purchased instead of made, there will be a chance to rent out part of the factory for $16,000. The cost to buy the units is $30 each unit purchased.

A. _________________What are the relevant costs per unit?

B. __________________________________What kind of cost is the $16,000?

C. What should the company domake or buy the widgets and how much better off will they be with your decision? Do both columns for relevant costs (one for the avoidable costs for the make decision and one for the avoidable costs for the buy decision). ________________________ $_______________

5. Machine hours are the constraint and the company only has 1,000 hours to use to produce 2 products. They can sell as many of each product as can be made. Product A Product B

Sales price per unit 51 40 Variable costs per unit 30 28 MHs needed 7 2

A. How many units of each should be produced to maximize profits?

Product A ________________________ Product B ____________________

B. If the company had 3 productsthe two above and a third one Product C that could be sold for 100 with variable costs of 80 and taking 4 hours to produce, rank the products from the most profitable to the least profitable use of the constrained resource.

C. What should the company be willing to pay to acquire more of the constrained resource? $_________