Question
help in this question maini manufactures two units, e230 and e34 for which the following information is available: Costs per unit e230 e34 Direct materials
help in this question
maini manufactures two units, e230 and e34 for which the following information is available:
Costs per unit | e230 | e34 |
Direct materials | $ 450 | $ 550 |
Direct labor | 600 | 750 |
Variable overhead | 750 | 900 |
Fixed overhead | 600 | 750 |
Total cost per unit | $2,400 | $2,950 |
Price | $3,000 | $3,900 |
Units sold | 400 | 200 |
The average wage rate is $20 per hour. The plant has a capacity of 21,000 direct labor hours, but current production uses only 19,500 direct labor hours.
Required:
1. A new customer has offered to buy 40 units of e34 if the price is lowered to $3,000 per unit. How many direct labor hours are required to produce 40 units of e34? How much will the profit increase (or decrease) if maini accepts this proposal? All other prices will remain the same.
2. Suppose that the customer has instead offered to buy 60 units of e34 at $3,000 per unit. How much will the profits change if the order is accepted? Assume that the company cannot increase its production capacity to meet the extra demand.
3. Answer the question in requirement (2), assuming instead that the plant can work overtime. Direct labor costs for the overtime production increase to $30 per hour, i.e., variable overhead cost for overtime production are 50% more than for normal production.
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