Sailing unlimited makes small sailboats the average monthly

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Reference no: EM13573176

Sailing Unlimited makes small sailboats. The average monthly demand is 50 boats. The plant operates 300 hours a month. It takes 3 hours to manufacture a boat once it is taken up for production. Each boat sells for $15,000 and consumes variable costs of $12,000. In addition to the variable costs, inventory carrying costs of $200 per boat per hour of manufacturing cycle time are also incurred by the company.

By incurring extra variable costs (primarily direct labor) of $500 per boat, the company will be able to reduce the manufacturing time for each boat from 3 hours to 2 hours. The average demand and the capacity will not change. Should the company implement this action?

Reference no: EM13573176

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