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.