You can see the picture better if you open it in a new tab. Chad Davis, C&C; Spo

Question

You can see the picture better if you open it in a new tab.

Chad Davis, C&C; Sports' vice president for operations, recently received a sales brochure for a new electric cutting tool. Based on the tool's specifications, Chad believes that C&C; Sports could increase the batch size on jersey production to 50 jerseys, up from the current 35 jerseys. While the cutting tool would be used on pants and award jackets as well, other production factors prevent increasing the batch sizes for these products. The new tool would increase annual operating costs by $14,082. Before deciding whether to purchase the cutting tool, Chad wants to know how the new tool will affect the cost of producing the company's three products. Calculate the total annual cost included in the cutting activity cost pool assuming the cutting tool is purchased. Calculate the cost per cut assuming the cutting tool is purchased.

Explanation / Answer

Total annual cost included in the cutting activity pool assuming the cutting pool is purchased is as calculated below:

Cutting Cost before purchasing cutting pool is $ 147,108

Cost increased $14,082

So, total cost is $161,190

Cost per cut assuming cutting tool is purchased is

Total cost $161,190

Total cut 53,730

Cost per cut is 161,190/53,730

$3 per cut

Budgeted production Units per batch Total Batched Cut per batch Total cuts Pants 1,83,500 50 3670 4 14680 Jersey 66,500 35 1900 5 9500 Jackets 18,000 5 3600 9 32400 56580 After tool purchased Budgeted production Units per batch Total Batched Cut per batch Total cuts Pants 1,83,500 50 3670 4 14680 Jersey 66,500 50 1330 5 6650 Jackets 18,000 5 3600 9 32400 53730

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