(1) Given the following data, determine the total annual cost of making with eac
ID: 407655 • Letter: #
Question
(1) Given the following data, determine the total annual cost of making with each of process A and B of buying. Estimated demand is 10,000 units a year. Which alternative is best?
Process A
Process B
Buy
VC per unit
$50
$52
$51
Annual FC
$40,000
$36,000
Transportation cost per unit
$2
(2) For the previous problem, suppose that the operation manager has said that it would be possible to achieve a 10 percent reduction in the fixed cost of Process B and a 10 percent reduction in B’s variable cost per unit. Would that be enough to change your answer if the estimated annual cost to achieve those saving was $8,000? Explain?
Process A
Process B
Buy
VC per unit
$50
$52
$51
Annual FC
$40,000
$36,000
Transportation cost per unit
$2
Explanation / Answer
1. total units can be manufactured of process A= 10,000*50+10,000*53= $1,030,000+40,000= $1,070,000
manucacturing cost of B= 10,000*105= $1,050,000+36,000= $1,086,000
alternative A is best.
2. no, even it this situation also the total cost of production is lesser for alternative A only.
with the action, the variable cost will be declines by $8000 for B, but the total cost variance is $16,000. so, even in this case also i go with alternative A.
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