Four holes must be drilled in a casting which forms the housing for an electric

Question

Four holes must be drilled in a casting which forms the housing for an electric motor. The holes may be located and drilled without the aid of a jig by a skilled machinist whose wage rate is $29 per hour. His production time will be 2.5 minutes per housing. A jig could be built at a cost of $500 permitting the holes to be drilled by a machinist at a lower skill level. In this case the lower wage rate would be $19 per hour and the production rate would be three minutes per housing. Which alternative would you recommend if 3,000 housings are to be produced? The total production cost using a jig with a less skilled machinist is S (Round to the nearest dollar)

Explanation / Answer

It incurs less cost when skill machinist proceeds to make 3000 housings. Let us see how.

For skilled machinist to make 3000 housings needs 2.5 minutes each and hence 3000*2.5 = 7500 minutes which is also equal to 125 hours.

Wage per hour is $29

Therefore total cost = 29* 125= $3635

Now, For Lower skill machinist, Fixed cost to bulid a jig = $500

he takes 3 minutes for each housing , hence 3 * 3000 = 9000 minutes which is equal to 150 hours

150 hours * $19per hour = $3320

Total cost using a jig with less skilled machinist = $3320 + $500 = $3820

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