Scarce Resource Constraint Crest information Technologies manufactures three sizes of copiers: Light, Medium, and Heavy. Demand for the three copiers is as follows: 200 units of Light, 240 units of Medium, and 200 units of Heavy. Crest has 12,000 machine hours available. Product information is provided below:
Light Medium Heavy
Selling Price per unit $300 $500 $1000
Variable Manufacturing Costs per unit $180 $300 $460
Machine Hours per Unit 20 40 100
Fixed manufacturing costs total $60,000.
REQUIRED: Determine how many units of each product should be produced and what the total contribution margin associated with your solution is.
2. Special Order Clearwater Company operates a wine outlet in a tourist area. One gallon bottles sell for $12 each. Variable manufacturing costs are $6 per gallon. Fixed costs total $3,000 per day. Regular demand has been 750 gallons per day. Clearwater has the capacigty to sell a maximum of 800 gallons per day
REQUIRED:
A. What is the total manufacturing cost per gallon?
B. A bus loaded with 40 senior citizens stops by at closing time and the tour director offers to purchase 40 gallons for $7.50 per gallon. Clearwater, believing that they would incur a loss of $2.50 per gallon, refuses the special order. Should the special order of 40 gallons be accepted? Was Clearwater correct about losing $2.50 per gallion? Why or why not?
C. A fund-raising organization has offered to make a one-time purchase of 300 gallons of wine from Clearwater for $7.50 per gallon. Should Clearwater accept the special order of 300 gallons? Why or why not?
3. Make or Buy
Omark Corporation currently manufactures a sub-assembly for its main product. The manufacturing costs for the sub-assembly PER UNIT are as follows:
Direct materials $2.00
Direct labor $20.00
Variable overhead $10.00
Fixed overhead $16.00
Total $48.00
Reliance Corporation has contacted Omark with an offer to sell Omark the sub-assemblies for $44 each. $50,000 of total fixed overhead costs can be eliminated if the sub-assemblies are purchased from Reliance. Omark produces 5,000 sub-assemblies each period. Should Omark continue to make the sub-assemblies themselves or should they purchase the sub-assemblies from Reliance Corporation? Why?