A. This is not the most optimal strategy. See the correct answer for a full explanation.

B. This is not the most optimal strategy. See the correct answer for a full explanation.

C. This is not the most optimal strategy. See the correct answer for a full explanation.

D. In order to find the correct answer, we first need to calculate the necessary machine hours per unit. The blender requires 1 machine hour per unit ($16 overhead ÷ $16 per hour). The mixer requires 2 machine hours per unit ($32 overhead ÷ $16 per hr). Based on the information that Geary has 50,000 machine hours available, the company can produce either 50,000 blenders or 25,000 mixers (or a combination), but some units of one or the other will need to be purchased. Next it is necessary to separate the fixed portion of overhead from the variable portion. The problem tells us that the fixed manufacturing overhead component included in the overhead cost per machine hour averages $10 per machine hour. Therefore, the variable portion of overhead for the blender is $6 per unit [($16 × 1) - ($10 × 1)]. The variable portion of overhead for the mixer is $12 per unit [($16 × 2) - ($10 × 2)]. Therefore, total variable cost for the blender is $16 ($6 DM + $4 DL + $6 VOH) and for the mixer it is $32 ($11 DM + $9 DL + $12 VOH).

The purchase price of the blender from an outside supplier is $20, so the cost savings to produce the blender is $4 ($20 purchase price - $16 VC). The cost savings per machine hour (since machine hours are the constrained resource) would be $4 ($4 cost savings ÷ 1 machine hour per unit). For the mixer the purchase price from an outside supplier is $38, so the cost savings to produce the mixer is $6 ($38 purchase price - $32 VC). The cost savings per machine hour is $3 ($6 cost savings ÷ 2 machine hours per unit).

In this case, the company will be better off to produce all the necessary blenders first, since the cost savings per machine hour to produce blenders is $1 more than the cost savings per machine hour to produce mixers ($4 - $3). The company needs 20,000 blenders per year. Since blenders require 1 machine hour per unit, producing the full amount needed will require 20,000 machine hours per year.  Geary will have 30,000 machine hours available to produce mixers (50,000 total machine hours - 20,000 hours needed to produce blenders). Since 30,000 machine hours are available to produce blenders, 15,000 blenders can be produced (30,000 hrs ÷ 2 machine hours per unit). Therefore, the optimal solution is to produce 20,000 blenders, 15,000 mixers and purchase the remaining 13,000 mixers needed.