A pump manufacturer improved its production operation over the past 18 months, a

Question

A pump manufacturer improved its production operation over the past 18 months, and a record of its performance improvement is shown in the table below.

Performance measure      Baseline   12 Months   18 months

Cycle time 18 weeks 6 weeks 1 week

Inventory turns 4 8 48

Scrap (% of lot size) 13 % 5 % .06 %

First time good parts 45 % 85 % 93 %

Floor space 2,200 sqft 600 sqft 175 sqft

The cost of goods sold was $1.8 million, the lot size production was 200 parts, and the overhead floor space cost was %210 per square foot. Calculate the overhead cost savings as a result of the floor space reduction between the baseline and 18-month point in time. (Enter your answer as a number without the dollar $ sign.)

Explanation / Answer

Overhead cost in baseline = 2200 x 210 = 462000

Overhead cost in 18-month point in time = 175 x 210 = 36750

Thus overhead cost savings = 462000 – 36750 = 425250

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