Question
9-47 on page 335 Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. CGs main product is a circuit
9-47 on page 335 Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. CGs main product is a circuit board (CB3668) used in computers with enhanced graphics capabilities. Prices vary depending on the terms of sale and the size of the purchase; the average price for the CB3668 is $100. The firm expects to sell 150,000 units in the coming year, and sales are expected to increase in the following years. At present, CG is manufacturing the CB3668 in a plant leased from ElecTech using some equipment purchased from ElecTech. CG manufactures about 70% of the parts in this circuit board. CG management is considering a significant reengineering project to significantly change the plant and manufacturing process. The projects objective is to increase the number of purchased parts (to about 55%) and to reduce the complexity of the manufacturing process. This would also permit CG to remove some leased equipment and to sell some of the most expensive equipment in the plant. The per-unit manufacturing costs for 150,000 units of CB3668 follow:
Current | Proposed | |
Materials and purchased parts | 6 | 15 |
Direct Labor | 12.50 | 13.75 |
Variable overhead | 25 | 30 |
Fixed overhead | 5,100,000 | 2,100,000 |
Batch related costs | 900,000 | 900,000 |
Manufacturing infromation for CB3668 | ||
Number of setups | 3,000 | 2,300 |
Batch size | 50 | 50 |
Cost per setup | 300 | 300 |
Machine Hours | 88,000 | 55,000 |
General, selling, and administrative costs are $10 variable cost per unit and $1,250,000 fixed; these costs are not expected to differ for either the current or the proposed manufacturing plan.
1. Compute the breakeven point in units for both the current and the proposed manufacturing plans, assuming that total setup costs vary with the number of batches and that the batch size is fixed (other than for the last batch, in most cases). Assume that setup costs are the only costs that vary with the number of batches. (Hint: Do not forget the general, selling, and administrative costs both fixed and variable costs)
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