Q16.1)
From eq 16.19:
We get cost for size or capacity difference:
C1=Co (L1/L0)
x=Co (1000/100)0.61
In 1985, for purchasing 10 new units, it will not
cost 10 times more due to the economy scale but if purchasing for 22years
later, the cost will increase due to the inflation.
Inflation per year = 5%
Original cost = $35,000
New original cost due to the inflation for 22 years
later = 35,000 (1+0.05)22= $102,384
So, the estimate of the cost is:
C1 = 102,384 (1000/100)0.61 = $ 417,092
Q16.2)
Overseas subcontractor
Labor per shoe 2.75
Materials 9.00
Shipping and import duty 3.50
Operating cost 3.00
Profit 1.75
U.S brand name shoe company
Purchase from subcontractor 20.00
Research and development 0.25
Promotion and advertising 4.00
Sales, G&A 5.00
Profit 6.75
Q16.3)
At break-even point, QB, cost using hard
tooling = cost of using soft tooling.
The chief cost elements are:
·
Cost of tooling, CH = $7500 and CS =
$600
·
Cost of tool setup, SH= $60 and SC =
$100. Parts made in batches, b, of 500 units.
·
Cost of making one part, CpH = $0.80 and
CpS = $3.40
So, at break-even point
CH+ (QB/b) SH + CpH
QB = CS + (QB/b) SS + CpS
QB
QB = (CH-CS) / (((SS-SH)/b)
+ (CpS - CpH)) = (7500-600)/ ((100-60)/500) +
(3.4-0.80))=6900/2.68 = 2574
At break-even point, hard tooling approaches become
more effective than soft tooling. So, for 500 units, the best decision is to
use hard tooling.
Q16.4
Prime cost
Direct labor 950,000
Direct material 2,150,000
Direct expenses 60,000
Direct engineering 90,000
Direct engineering expenses 30,000
3,280,000 (1)
Factory expense
Plant utilities 70,000
Plant & equipment depreciation 120,000
Warehouse expense 60,000
300,000 (2)
General and administrative expenses
(G&A)
Plant manager and staff 180,000
Administrative salaries 120,000
Office utilities 10,000
310,000 (3)
Manufacturing cost = (1) + (2) +(3) = 3,890,000 (4)
Sales expense = 100,000 (5)
Total cost = (4)+ (5) =3,990,000 (6)
Profit margin = profit / sales = P/S = 0.15
Sales (S) = Total cost (CT) + Profit (P)
S =CT + P = CT + 0.15S ;
S = CT / 0.85 = 3,990,000/0.85 =
4,694,118
The unit selling price of turbine is $4,694,116/60
units sold = $ 78,235
