2C2O LARK INDUSTRIES ACCEPTED A CONTRACT TO PROVIDE 30,000 UNITS OF P...
264.
CSO: 2C2g
LOS: 2C2o
Lark Industries accepted a contract to provide 30,000 units of Product A and 20,000 units
of Product B. Lark’s staff developed the following information with regard to meeting
this contract.
Product A
Product B
Total
Selling Price
$75
$125
Variable costs
$30
$48
Fixed overhead
$1,600,000
Machine hours required
3
5
Machine hours available
160,000
Cost if outsourced
$45
$60
Lark’s operations manager has identified the following alternatives. Which alternative
should be recommended to Lark’s management?
a.
Make 30,000 units of Product A, utilize the remaining capacity to make Product
B, and outsource the remainder.
b.
Make 25,000 units of Product A, utilize the remaining capacity to make Product
c.
Make 20,000 units of Product A, utilize the remaining capacity to make Product
d.
Rent additional capacity of 30,000 machine hours which will increase fixed costs
by $150,000.