. Two currently owned machines are being considered for the production of a part. The capital investment associated with the machines is about the same and can be ignored for purposes of this example. The important differences between the machines are their production capacities and their reject rates. Consider the following machine: Machine A: Production rate=250 parts per hour Hours available for the operation= 8 hours per day Percent defective= 5% Machine B: Production rate=290 parts per hour Hours available for the operation= 5 hours per day Percent defective= 12% The material cost is P12 per part, and all defect-free parts produced can be sold for P30 each. (Rejected parts have negligible scrap value.) For either machine, the operator cost is P45.00 per hour and the variable overhead rate for traceable costs is fiver percent of the operator cost per hour. a. What would the percent of parts rejected have to be for Machine B to be as profitable as Machine A? b. Assume that the daily demand for this part is large enough that all defect-free parts can be sold. Which machine should be selected?
. Two currently owned machines are being considered for the production of a part. The capital investment associated with the machines is about the same and can be ignored for purposes of this example. The important differences between the machines are their production capacities and their reject rates. Consider the following machine: Machine A: Production rate=250 parts per hour Hours available for the operation= 8 hours per day Percent defective= 5% Machine B: Production rate=290 parts per hour Hours available for the operation= 5 hours per day Percent defective= 12% The material cost is P12 per part, and all defect-free parts produced can be sold for P30 each. (Rejected parts have negligible scrap value.) For either machine, the operator cost is P45.00 per hour and the variable overhead rate for traceable costs is fiver percent of the operator cost per hour. a. What would the percent of parts rejected have to be for Machine B to be as profitable as Machine A? b. Assume that the daily demand for this part is large enough that all defect-free parts can be sold. Which machine should be selected?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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3. Two currently owned machines are being considered for the production of a part. The capital investment associated with the machines is about the same and can be ignored for purposes of this example. The important differences between the machines are their production capacities and their reject rates. Consider the following machine:
Machine A:
Production rate=250 parts per hour
Hours available for the operation= 8 hours per day
Percent defective= 5%
Machine B:
Production rate=290 parts per hour
Hours available for the operation= 5 hours per day
Percent defective= 12%
The material cost is P12 per part, and all defect-free parts produced can be sold for P30 each. (Rejected parts have negligible scrap value.) For either machine, the operator cost is P45.00 per hour and the variable overhead rate for traceable costs is fiver percent of the operator cost per hour.
a. What would the percent of parts rejected have to be for Machine B to be as profitable as Machine A?
b. Assume that the daily demand for this part is large enough that all defect-free parts can be sold. Which machine should be selected?
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