Problem 14-46 Production Decisions; Limited Capacity (LO 14-5, 14-6)

Chef Gourmet, Inc., has assembled the following data pertaining to its two most popular products.

	Blender			Food Processor
Direct material	$	18		$	28
Direct labor		11			39
Manufacturing overhead @ $46 per machine hour		46			92
Cost if purchased from an outside supplier		65			133
Annual demand (units)		34,000			40,000

Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $23. Management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.

Required:

1.	If 72,000 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?

2.	With all other things constant, if management is able to reduce the direct material for a food processor to $18 per unit, how many units of each product should be manufactured? Purchased?