Question
Steadfast Inc. (SI) makes and sells two products. Information about these two products which are made in its factory are as follows: Variable cost
Steadfast Inc. (SI) makes and sells two products. Information about these two products which are made in its factory are as follows: Variable cost per unit Fixed cost allocated per unit Product Orange Product Pink $39.60 $49.10 $8.50 $9.00 Additional data concerning these products are listed below. Product Orange Product Pink 1.8 Time on machine per unit (in minutes) 1.7 Selling price per unit $76.10 $87.50 Expected monthly demand (in units) 2,000 3,120 Both products require machining and use the same machines. The company does not have any inventory at the start of the current month. A. The fixed cost has been allocated to each unit of output based on expected fixed costs and expected monthly demand in the current month, using machine minutes as the allocation base. Calculate the expected fixed cost for the current month. Show all workings. [3 marks] You are now told that a total of 9,000 machine minutes are available during the current month due to the breakdown in one of the machines. B. Based on quantitative factors alone, how many units of each product should be produced in the current month to maximise the company's profits? Show all calculations and round your final answer DOWN to whole units. [6 Marks] C. Based on both quantitative and qualitative factors, assume SI decides to prioritise the production and sale of Product Pink in the current month. An external supplier then approaches the company with an offer to supply exactly 12 units of Product Orange during the current month. In other words, the supplier is unable to supply more than 12 or less than 12 units of Product Orange to FBI. Apart from the price paid to the external supplier, there is NO ADDITIONAL cost that needs to be incurred by the company in order to sell the units that are purchased externally. Considering only quantitative factors, calculate the supplier's price per unit that would cause the company to be indifferent between purchasing and not purchasing the 12 units of Product Orange from the supplier i.e., the highest price per unit the company will be willing to pay the supplier. Assume that any unsold inventory of Product Orange in the current month will NOT be able to be sold in the next month and therefore will have to be disposed. Sl does not incur any cost when disposing any excess units. Show all calculations. [4 marks] D. How would your answer to Part C change if any unsold inventory of Product Orange in the current month would be able to be sold in the following month at the same price (i.e., 76.10). Assume there is no cost of storage and consider only quantitative factors. Show all workings. [3 marks] E. What are 2 qualitative factors that SI should consider when deciding whether to purchase Product Orange from the external supplier? [4 marks]
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