Homework

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points

Part $1$ of $3$

Points: $0$ of $1$

Arellano Associates is a construction engineering firm that prepares detailed construction drawings for single$-$family homes. The market for this service is very competitive. To compete successfully Arellano must deliver quality service at low cost. Arellano presents the following data for $2019$ and $2020.$

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Engineering labor$-$hour costs are variable costs. Engineering support costs for each year depend on the engineering support capacity that Arellano chooses to maintain each year $($that is$,$ the number of jobs it can do each year$).$ Engineering support costs do not vary with the actual number of jobs done in a year.

Read the requirements.

Requirement $1.$ Calculate the amount and cost of unused engineering support capacity at the beginning of $2020,$ based on the number of jobs actually done in $2020.$

The amount of unused capacity is jobs and the cost of unused capacity is

Data table

$\backslash$table$[[,2019,2020,],[1.$ Number of jobs billed,$300,450,],[2.$ Selling price per job,$$,3,500$$$,3,200],[3.$ Engineering labor$-$hours,$20,000,21,000,],[4.$ Cost per engineering labor$-$hour,$$,31$$$,32],[5.$ Engineering support capacity $($number of jobs the firm can do$),700,700,],[6.$ Total cost of engineering support $($space rent, equipment, etc.$),$$$,245,000$$$,259,000],[7.$ Engineering support$-$capacity cost per job,$$,350$$$,370]]$

Requirements

Calculate the amount and cost of unused engineering support capacity at the beginning of $2020,$ based on the number of jobs actually done in $2020.$

Suppose Arellano can add or reduce its engineering support capacity in increments of $50$ jobs. What is the maximum amount of costs that Arellano could save in $2020$ by downsizing engineering support capacity?

Arellano, in fact, does not eliminate any of its unused engineering support capacity. Why might Arellano not downsize?