Reference no: EM131005229
Sandstone Corp has one manufacturing plant that operates on a single-shift/5 day workweek. The plant operates at full capacity (24000 units per week) WITHOUT overtime or extra shifts.
Fixed costs for the single shift amount to $90000 per week, and the variable cost per unit is $30 per unit.
Great news! The company has received an order to produce an extra 4000 units per week, beyond the single-shift 24000 units. There are two ways to support the 4000 extra units of production.
(1) Add Saturday overtime. However, the extra units will require $36 of variable cost but no additional fixed costs.
(2) Operate a second (afternoon) shift. The variable cost of the second shift is $31.50 per unit, but there are additional fixed costs of $13,500 per week.
(a) At what volume of additional unit output does it make sense to operate a second shift? What are the additional operating costs for Sandstone Corp?
(b) If the fixed costs of the afternoon shift increase to $15,000 per week (with the same variable cost), does it still make sense to operate a second shift?
(c) Prepare a graph that illustrates your analysis from (a) OR (b)
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