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Chapter 11 In Class Question_solution.pdf

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University of Alberta
Trish Stringer

In Class #11.1 Direct labour available = 8,000 tackle boxes x 1.25 hours* = 10,000 hours * $18.75 DL cost of a tackle box / $15.00 DL Wage Rate = 1.25 hour per tackle box Skateboards would require 17,500 / 2 = 8,750 hours Tackle Skate Boxes Boards Selling price $86.00 $45.00 Less variable costs Plastic (8.00) (5.50) Hinges, latches, plastic (9.00) (7.00) Direct labour (18.75) (7.50) Manufacturing overhead 1.25 hours x $5.00** | 0.5 hours x $5.00 (6.25) (2.50) Selling and administrative: $17 - 6 | $9 - 6 (11.00) (3.00) CM/Unit $33.00 $19.50 DLH per unit 1.25 0.50 CM per direct labour hour $26.40 $39.00 ** Manufacturing overhead rate / hour - total: $12.50 / 1.25 $10.00 Less fixed portion: $50,000 / 10,000 (5.00) Varipboltion $5.00 Manufacture skateboard. With remaining capacity of 10,000 - 8,750 = 1,250 hours, make 1,000 tackle boxes and purchase remaining 9,000 from external supplier. 1.2 Optimal production mix Della Simpson Inc. sells two popular brand os cookies, Della’s Delight and Bonny’s Bourbon. Della’s Delight goes through the Mixing and Baking Departments and Bonny’s Bourbon, a filled cookie, goes through the Mixing, Filling, and Baking departments. Michael Shirra, vice- president of sales, believes that at the current price, Della Simpson can sell all of its daily production of Della’s Delight and Bonny’s Bourbon. Both cookies are made in batches of 3,000 cookies. The batch times (in minutes) for producing each type of cookie and the minutes available per day are as follows: Department Minutes Mixing Filling Baking DeliDhetlla’s30 0 10 BoBuonnny’s 15 15 15 Minutes available per day 660 270 300 Revenue and cost data for each type of cookie are: Della’s Delight Bonny’s Bourbon Revenue per batch $ 475 $ 375 Variable cost per batch $ 175 $ 125 Contribution margin per $ 300 $ 250 batch Monthly fixed costs (allocated to each product) $18,650 $22,350 Required 1 Using D to represent the batches of Della’s Delight and B to represent the batches of Bonny’s Bourbon made and sold each day, formulate Shirra’s decision as a linear programming model. Let D represent the batches of Della’s Delight made and sold. Let B represent the batches of Bonny’s Bourbon made and sold. The contribution margin per batch of Della’s Delight is $300. The contribution margin per batch of Bonny’s Bourbon is $250. The LP formulation for the decision is: Maximize $300D + $250 B Subject to30D + 15B  660 (Mixing Department constraint) 15B  270 (Filling Department constraint) 10D + 15B  300 (Baking Department constraint) B>0 D>0 Required 2 Compute the optimal number of batches of each type of cookie that Della Simpson Inc. should make and sell each day to maximize operating income. Solution Exhibit 11-31 presents a graphical summary of the relationships. The optimal corner is the point (18, 8) i.e., 18 batches of Della’s Delights and 8 of Bonny’s Bourbons. SOLUTION EXHIBIT 11-31 Graphic Solution to Find
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