2C2O SYNERGY INC. PRODUCES A COMPONENT THAT IS POPULAR IN MANY REFRIG...
243.
CSO: 2C2d
LOS: 2C2o
Synergy Inc. produces a component that is popular in many refrigeration systems. Data
on three of the five different models of this component are as follows.
Model
A B C
Volume needed (units)
5,000 6,000 3,000
Manufacturing costs
Variable direct costs
$10 $24 $20
Variable overhead
5 10 15
Fixed overhead
11 20 17
Total manufacturing costs
$26 $54 $52
Cost if purchased
$21 $42 $39
Synergy applies variable overhead on the basis of machine hours at the rate of $2.50 per
hour. Models A and B are manufactured in the Freezer Department, which has a
capacity of 28,000 machine processing hours. Which one of the following options should
be recommended to Synergy's management?
a.
Purchase all three products in the quantities required.
b.
Manufacture all three products in the quantities required.
c.
The Freezer Department's manufacturing plan should include 5,000 units of
Model A and 4,500 units of Model B.
d.
The Freezer Department's manufacturing plan should include 2,000 units of
Model A and 6,000 units of Model B.