Same material and manufacturing costs

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Reference no: EM139069

Q. Two alternative designs are under consideration for a tapered fastening pin. The fastening pins are sold for $0.70 each. Either design will serve equally well and will involve the same material and manufacturing costs excluding the lathe as well as drilling operations.

Design A: requires 16 hours of lathe time also 4.5 hrs is drill time for every 1,000 units.

Design B: requires 7 hours of lathe time also 12 hrs is drill time for every 1,000 units.

The variable operating cost of the lathe, including labor, is $16.00 per hour; the variable operating cost of the drill, including labor, is $16.90 per hour. Finally, there is a sunk cost of $5,000 for Design A and $9,000 for Design B due to obsolete tooling.

Which design should be adopted if 125,000 units are sold each year?

Reference no: EM139069

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