A production process consists of a three-step operation. The scrap rate is 17 pe

Question

A production process consists of a three-step operation. The scrap rate is 17 percent for the first step and 10 percent for the other two steps.

a.If the desired daily output is 492 units, how many units must be started to allow for loss due to scrap? (Do not round intermediate calculations. Round up your final answer to the next whole number.)

Number of units             

b.If the scrap rate for each step could be cut in half at every operation, how many units would this save in terms of the scrap allowance? (Do not round intermediate calculations. Round up your final answer to the next whole number.)

Number of units             

c.If the scrap represents a cost of $10 per unit, how much is it costing the company per day for the original scrap rate (i.e. the Part a scrap rate)? (Round your final answer to the nearest whole number. Omit the "$" sign in your response.)

Cost           $  

Explanation / Answer

(a)

Final step output = 492

Final step input = Second step output = 492 / (1 - 0.1)

Second step input = First step output = (492 / (1 - 0.1)) / (1 - 0.1)

First step input = ((492 / (1 - 0.1)) / (1 - 0.1)) / (1 - 0.17) = 732

(b)

Fot the halved scrap rate,

First step input = ((492 / (1 - 0.05)) / (1 - 0.05)) / (1 - 0.085) = 596

So, savings is scrap = 732 - 596 = 136 units

(c)

Cost = (732 - 492) x $10 = $2,400 per day

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