Question

Q5. Barber Manufacturing currently makes 2,000 units of gas-powered leaf blowers each year. However, the company has found a manufacturing company that can provide the blowers at a price of $14 each. The company is considering purchasing the blowers. If the company purchases the blower, the machine can be used to produce 5,000 units of another product that would generate a contribution of $2 per unit. There will be no need of supervisor if Barber goes for outsourcing. Barber’s standard cost for a blower is listed below. Direct Material…………………………………………………….….. $4 Direct labor…………………………………………………………..… 2 Variable cost…………………………………………………………… 3 Fixed Cost Depreciation …………………………………………..…………….…..3 CEO’s Salary……………………………………………………………2 Supervisor’s salary (directly connected with blower) ……………….. 4 Cost per unit $18 Required: a. Should Barber purchase the blower outside or make it at his own. (Marks 08) b. List five ways that management can seek to relax a constraint by expanding the capacity of a bottleneck operation. (Marks 02)  

Answer 1