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The boss has asked you to make a recommendation about a onetime order to produce 45,000 parts for a local aircraft manufacturer. Because your company
The boss has asked you to make a recommendation about a onetime order to produce 45,000 parts for a local aircraft manufacturer. Because your company does not have the machinery required to produce the part, and it is just a one- time contract, it has been decided to rent a machine. There are only two machines available that will do the job and the important differences between the two machines are shown in the table below. Rental Cost : one-time setup Rental Cost / month Heating Fuel Cost / Hour Parts / Hour Defect Rate Machine A $ 20,000.00 $ 7,500.00 $ 155.00 $ $ $ Machine B 25,000.00 8,250.00 140.00 80 95 5.4% 8.9% Machines can only be rented by the full month not by the day. Either machine will require an operator to run it and perform the quality control function of pulling defective parts. The loaded rate for machine operators in your plant is $25 /hour. You will have the machine in operation for two shifts per day for five days a week and you should assume that there are 4.3333 weeks/month for this analysis. Each shift is 8 hours long; however, employees take one paid hour for lunch and two 15 minute paid coffee breaks per shift and receive full pay for each shift even if only part of a shift is required. Each part weighs 500 grams and the required metal costs $1.42 per kg. Defective parts will have to be shipped to a recycling centre. The hauling company charges $175 per trip and can take a maximum of 1000 kg per trip. Your boss has asked you to put together the total cost quotation for the customer (rounded to the nearest $1,000) using a 68% profit markup. She would like you to give her a breakdown by identifying the major cost items for both machines; Rental costs, Variable costs (excluding labour), Labour costs and Recycling costs
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