The machine is currently being used elsewhere in thebusiness where it generates a present value of $20,000 it has a scrapvalue of $12,000. (5) A machine bought for $30,000four years ago. Each hour used on this other productioncurrently generates contribution of $4 per hour (being revenue of $25,material cost of $15 and labour of $6). Therefore the only way to get the required hours is to movestaff from other production. Due to union restrictions, staff willnot work overtime and there is no other labour available at such shortnotice. Semi skilled labour is paid at $6 per hour but is currentlyfully occupied on other projects. The remaininghours would be made up through overtime which would be paid at $12 perhour. (3) 4,000 hours of skilled labour.Skilled labour is paid a fixed weekly wage and there is currently sparecapacity sufficient to provide half the required hours. There isno other use for the material and it has a scrap value of $1.00 per kg. Thecompany currently has 600kgs in stock which was bought last month for$3.00 per kg although the current purchase price is now $3.50. Material A is regularly used in the company's other products.
Thecompany currently has 2,500kgs in stock which was bought last month for$2.00 per kg, although the current purchase price has now increased to$2.15.
The conversion would require the following: The company has the option of converting the product into a different version which it estimates could be sold for $85,000. A company has produced a made-to-order product for a customer at acost of $50,000, which was to have been sold to the customer for$120,000.
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