Question 1
How does a manager go about choosing which of three products to produce and sell when each product uses a single machine with a limited capacity?
Question 2
Lewis S. Gray Inc. manufactures a part for use in its production of art deco furniture. When 10,000 items are produced, the costs per unit are:
Direct manufacturing labor | 60 |
Variable manufacturing overhead | 25 |
Fixed manufacturing overhead | 32 |
Colonial Accents Company has offered to sell to Lewis S. Gray 10,000 units of the part for $125 per unit. The plant facilities could be used to manufacture another part at a savings of $180,000 if Lewis S. Gray accepts the supplier's offer. In addition, $30 per unit of fixed manufacturing overhead on the original part would be eliminated.
Required:
a. | What is the relevant per unit cost for the original part? |
b. | Which alternative is best for Lewis S. Gray Company? By how much? |