Garson, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below: Product Selling price Variable costs Fixed costs Milling machine time (minutes) $ 95 $75 $105 $ 76 $ 60 $ 75 $ 15 $ 6 $ 12 105 5 Fixed costs are applied to the products on the basis of direct labor hours. Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,700 minutes of milling machine time available this week. Required: a. Given the milling machine constraint, which product should be emphasized? b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of milling machine time? a. Product that should be emphasized b. Maximum amount I per hour Futura Company purchases the 70,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.30 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $12.10 as shown below. Total Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total production cost Per Unit $ 5.00 3.20 1.80 1.00 8.60 2.50 $ 126,000 $ 70,000 $ 35,000 12.10 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $126,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $90,000 per period. Depreciation is due to obsolescence rather than wear and tear Required: What is the financial advantage (disadvantage) of making the 70,000 starters instead of buying them from an outside supplier? Given the following data: Average operating assets Total liabilities Sales Contribution margin Net operating income $2,200,000 $ 396,000 $1,650,000 $ 990,000 $ 396,000 Return on investment (ROI) is: Multiple Choice O 24.0% O 18.0% O 60.0% O 45.0% Garson, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below: Product Selling price Variable costs Fixed costs Milling machine time (minutes) $95 $75 $105 $ 70 $ 60 $ 75 $ 15 $ 6 $ 12 10 55 Fixed costs are applied to the products on the basis of direct labor hours. Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only Required: a Given the milling machine constraint, which product should be emphasized? b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of milling machine time? a. Product that should be emphasized b. Maximum amount per hour
