QUESTION 1 Two machines are being considered for the production of a part. Mater
ID: 1125009 • Letter: Q
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QUESTION 1 Two machines are being considered for the production of a part. Material costs are $6 per part. Labor costs are $20 per hour. The selling price is $12.00 per part. The first machine (Machine A) can produce 100 parts per hour and is available for 7 hours per day, 3% of the parts produced on per hour and is available 6 hours per day. 10% of the parts produced by Machine B are expected to be rejected. Assuming that all parts that are not rejected are sold, which machine should be selected based on expected daily profit? 0 a. Machine A. Ob. Machine B. O c Both machines are equivalent. Od. There is not enough information provided to determine.Explanation / Answer
Question 1
Machine A
Total parts produced = 100 * 7 = 700 parts
Machine cost = 700 * $6 = $4,200
Labor cost = $20 * 7 = $140
Total cost = Machine cost + Labor cost = $4,200 + $140 = $4,340
Parts rejected = 3% of 700 = 0.03 * 700 = 21
Parts sold = 700 - 21 = 679
Total revenue = 679 * $12 = $8,148
Expected daily profit = TR - TC = $8,148 - $4,340 = $3,808
The expected daily profit from Machine A is $3,808.
Machine B
Total parts produced = 130 * 6 = 780 parts
Machine cost = 780 * $6 = $4,680
Labor cost = $20 * 6 = $120
Total cost = Machine cost + Labor cost = $4,680 + $120 = $4,800
Parts rejected = 10% of 780 = 0.10 * 780 = 78
Parts sold = 780 - 78 = 702
Total revenue = 702 * $12 = $8,424
Expected daily profit = TR - TC = $8,424 - $4,800 = $3,624
The expected daily profit from Machine B is $3,624.
The expected daily profit is higher from Machine A.
So, machine A should be selected.
Hence, the correct answer is the option (a).
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