university of southern california Operations And Supply Chain Management Assignment Help - Lotus Fixtures

Question - Lotus Fixtures, Inc. (LFI), manufactures steel fittings. Each fitting requires both steel and an alloy that
allows the fitting to be used under extreme conditions. The following data apply to the production of
the fittings:
Direct materials per unit
2 pounds of steel at $0.40 per pound
0.5 pounds of alloy at $3.00 per pound
Direct labor per unit
0.01 hours at $30 per hour
Overhead per unit
Indirect materials . . . . . . . . . . . . . . . . . . . $0.50
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . 0.80
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40
Plant and equipment depreciation . . . . . . 1.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 0.70
Total overhead per unit . . . . . ...Read More . . . . . . . . . $3.40
The plant and equipment depreciation and miscellaneous costs are fixed and are based on production
of 500,000 units annually. All other costs are variable. Plant capacity is 600,000 units annually.
All other overhead costs are variable.
The following are forecast for year 2. Contract negotiations with the union are expected to lead to an
increase in hourly direct labor costs of 10 percent, mostly in the form of additional benefits.
Commodity prices, including steel, are expected to decline by 20 percent due to the economic
slowdown. Alloy prices are expected to remain constant. Plant and equipment depreciation costs are
expected to increase by 5 percent. All other unit overhead costs are expected to remain constant.
LFI expects to sell 420,000 units in year 2. The current inventory of fittings is 40,000 units and
management would like to see a reduction of inventory of 20,000 units by the end of the year 2.
Steel and alloy inventories will not change. Sales are approximately uniform over the year.
Required
Prepare a production budget and estimate the materials, labor, and overhead costs for year 2. ...Read Less

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