Question

General Food Stuffs packages a variety of breakfast cereals and snack bars, which it aggregates as simply units of sale when doing medium-term planning. General Food Stuffs has created the following aggregate plan for the next 3 months: Month 1 Month 2 Month 3 Beginning Inventory 5,000 Forecast (units of sale) 28,000 29,000 30,000 Overall Production 30,000 30,000 30,000 Ending Inventory Regular Production ($2/unit) Overtime Production ($3/unit) General Food Stuffs can produce up to 20,000 units of sale a month in regular time, when production costs are only $2 per unit of sale. When General Food Stuffs has to exceed 20,000 units of sale in a single month, all units of sale in excess of 20,000 must be produced in overtime production at a cost of $3 per unit of sale. What is the cost of overtime production for Month 3?

Answer 1

Answer:

$30,000

Explanation:

                                               Month 1           Month 2            Month 3

Beginning Inventory                5,000              7,000               8,000

Forecast (units of sale)          28,000             29,000             30,000

Overall Production                30,000              30,000            30,000

Ending Inventory                     7,000                8,000              8,000

since the company can produce 20,000 units during regular time, and all excess units will count as overtime, then the overtime costs for any of the three months = (overall production - regular production) x overtime costs = (30,000 - 20,000) x $3 = 10,000 x $3 = $30,000.

The overtime production is the same for the three months since budgeted total production is 30,000 units which exceeds the regular production by 10,000 each month.