he 15 part configuration and esen has reduced the number of parts to S. Then cur
ID: 2589180 • Letter: H
Question
he 15 part configuration and esen has reduced the number of parts to S. Then current activity capacity and demand for guration and expected activity demand for the 5 part configuration are provided below 40 Clinton Corp. i with 15 parts but through r is a manufacturer of equipment used in motoreycles production. It currently produces a product | Expected Activity Current Demand 100,000 4,000 6,000 Activities-1-Activity Driver Activity Capacity Activity Dema number of parts10.00 Materials 300.000 10,00 8,000 300,000 Assembly direct labor hours0 Purchasing partsnum of orders 10,00 Materials usage has a rate of $4 per part and no fixed costs. Assembly has a rate of $15 per labor hour with no fixed component. Purchasing requires clerks that can process 5000 purchase orders. Each clerk earns $35,000 per year. There is also a $2 per order processing cost. The product sells for $45 and 50,000 units will be produced. Required: a. What is the total cost savings from the new design? b. What is the new sales price if the cost savings are passed on to the customer?Explanation / Answer
Solution:
PART-1) Total cost savings from the new design: $894,000
PART-2) New sales price if the cost savings are passed on to the customer: $27.12
Working:
1) M (300,000 - 100,000) * $4 = $ 800,000
A (10,000 - 4,000 ) * $15 = $ 90,000
P (8,000 - 6,000) * $2 = $ 4,000
Total savings = 800,000 + $90,000 + $4,000 = $894,000
2) New sales price = $45 - ($894,000/50,000) = $27.12
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