Question
Suppose that you have access to the data on the efficiency and scrap rate of a packaging line for a product that your firm manufactures.
Suppose that you have access to the data on the efficiency and scrap rate of a packaging line for a product that your firm manufactures. If a package is defective, the material is not damaged and is repackaged accordingly. The standard and actual specifications are as follows:
Measure | Standard (%) | Actual (%) |
Manufacturing Efficiency | 90 | 72 |
Packaging Efficiency | 90 | 75 |
Manufacturing Scrap Rate | 1 | 1.5 |
Packaging Scrap Rate | 1.5 | 3 |
Along with that data, you also have the cost breakdown of the product using the standard specifications, which is:
Standard $ per Unit | |
Raw Material | $10.00 |
Packaging Material | $2.00 |
Labor-Manufacturing | $5.00 |
Labor-Packaging | $3.00 |
Overhead & Depreciation | $5.00 |
a. You sell this item for $45 each on the market. Use the information above to calculate the actual per unit cost of the product. Fill out the table below (round to the nearest cent):
Actual $ per Unit | |
Raw Material | |
Packaging Material | |
Labor Manufacturing | |
Labor Packaging | |
Overhead & Depreciation | |
Total Cost | |
Profit |
b. If you continue to produce in house, your maintenance costs for the two lines averages $125 per month per line. You currently sell 2,500 units per year, which is forecasted to be stable. With this information in mind, complete the following table (round to the nearest cent):
In-Hour Cost | Annual Figures |
TC Production | |
Maintenance | |
Total Cost | |
Revenue | |
Profit |
c. As you investigate the opportunity to outsource this product, a vendor has returned your RFQ with a per unit price quote of $25.50. Accounting has informed you that if you outsourced this product, 25% of the fixed cost would not be saved if the item was no longer produced in house
Outsourcing Cost | Annual Figures |
COGS | |
Contribution to Overhead | |
Revenue | |
Profit |
d. Based on the results above, would you recommend to outsource this product? Please support your decision with the increase/decrease in profit figures.
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