Reference no: EM132562341

The below illustration assumes a shortage of direct labor as the limiting resource constraint. The details of the company's three product lines (A, B, C) are as follows:

Per unit                          Product A                          Product B                      Product C

Selling price                     50                                40                                30

Variable cost                     20                                22                                     20

Maximum labor hours available =12,000

The company produces one unit of A, two units of B, and six units of C in one direct labor hour

Required

Question 1: If annual demand for all products is more than the company can produce next year, which product should the company emphasize?

Question 2: If expected demand for each product is limited (A, 10,000 units; B, 5000 units; C, 6000 units), how many units of each product must be produced? Total contribution margin?

C.A vendor has offered to supply a component for $38 (FOB destination) that has previously been manufactured internally.

Per unit

DM $18

DL 6

Variable overhead 3

Fixed Overhead 4

Total cost $31

Question 3: Suppose fixed costs cannot be avoided if the component is purchased from outside. Should the company make or buy if the vacated facilities are:

a. left idle?

b. Used for other purpose which generates net benefit of Br. 10,000?

c. Rented out for Br. 15,000