Reference no: EM13757366

The Goodparts Company produces a component that is subsequently used in the aerospace industry. The component consists of three parts (A, B, C) that are purchased from outside and cost 40, 35, and 15 cents per piece, respectively. Parts A and B are assembled first on an assembly line 1, which produces 140 components per hour. Part C undergoes a drilling operation before being finally assembled with the output from assembly line 1. There are in total six drilling machines, but at present only three of them are operational. Each drilling machine drills part C at a rate of 50 parts per hour. In the final assembly, the output from assembly line 1 is assembled with the drilled part C. The final assembly line produces at a rate of 160 components per hour. At present, components are produced eight hours per day and five days per week. Management believes that if need arises, it can add a second shift of eight hours for the assembly lines.

The cost of assembly labor is 30 cents per part for each assembly line; the cost of drilling labor is 15 cents per part. For drilling, the cost of electricity is one cent per part. The total overhead cost has been calculated as $1,200 per week. The depreciation cost for equipment has been calculated as $30 per week.

a. Determine the process capacity (number of components produced per week) of the entire process.

b. Suppose a second shift of eight hours is run for assembly line 1 and the same is done for the final assembly line. In addition, four of the six drilling machines are made operational. The drilling machines, however, operate for just eight hours a day. What is the new process capacity (number of components produced per week)? Which of the three operations limits the capacity?

c. Management decides to run a second shift of eight hours for assembly line 1 plus a second shift of only four hours for the final assembly line. Five of the six drilling machines operate for eight hours a day. What is the new capacity? Which of the three operations limits the capacity?

d. Determine the cost per unit output for questions (b) and (c).

e. The product is sold for $4.00 per unit. Assume that the cost of a drilling machine (fixed cost) is $30,000 and the company produces 8,000 units per week. Assume that four drilling machines are used for production. If the company had an option to buy the same part for $3.00 per unit, what would be the break-even number of units?