Problem 14-44 Production Decisions; Limited Capacity (LO 14-5, 14-6)

Kitchen Magician, Inc., has assembled the following data pertaining to its two most popular products.

	Blender				Mixer
Direct material	$	22				$	32
Direct labor		15					43
Manufacturing overhead @ $54 per machine hour		54					108
Cost if purchased from an outside supplier		75					146
Annual demand (units)		38,000					45,000

Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $27. Kitchen Magicians management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Required: 1. If 80,000 machine hours are available, and management desires to follow an optimal strategy, how many units of each product should the firm manufacture? How many units of each product should be purchased?

Blender Mixer

Manufacture

Purchase

2. With all other things constant, if management is able to reduce the direct material for a mixer to $22 per unit, how many units of each product should be manufactured? Purchased?

Blender Mixer

Manufacture

Purchase