Baxter Manufacturing has gathered data appearing below pertaining to 2 products. Past experience has illustrated that unavoidable fixed factory overhead included in cost per machine hour averages $10. Direct labor is paid $18 per hour. Baxter has policy of filling all sales orders, even if it means buying units from outside suppliers at same selling price per unit that Garrity currently charges.
Blender Electric Mixer
Direct Material $6 $11
Direct Labor $4 $9
Factory OH @ $16 per machine hr $16 $16
Selling price per unit $20 $38
Annual demand in units 20,000 28,000
Required:
1. Suppose Baxter Manufacturing has 50,000 machine hours available. Determine optimal production of each product to maximize Baxter's profits?
2. Refer to original information. With all other constant, if Baxter is able to decrease materials cost for electric mixer by $6 per unit, what strategy must Baxter pursue?
3. Refer to original information. Suppose that outbreak of swine flu has left Baxter shorthanded on direct labor personnel. Approximately one-half of workforce will be out of work for one month. In month, write strategy that must Baxter purse?
4. Company generally records 650 direct labor hours in June. Each job needs 1.45 hours of labor time. If management wishes to earn the profit equal to 40% of costs incurred, what must the charge be to the average lawn-care customer.