Ambrosia Corp. is a manufacturer of equipment used in manufacturing. It currentl
ID: 2519738 • Letter: A
Question
Ambrosia Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for the 30 unit configuration and expected activity demand for the 9 part configuration are provided below:
Materials usage has a rate of $6 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
Explanation / Answer
Answer:-
Total cost reduction of new design=$ 16,28,000 (Refer Working Note 1)
Total no of units= 10,000
Total savings per unit=
$16,28,000/10,000= Rs 162.80
New sales price if cost savings are passed on to the consumer=
$500-$162.80
$337.20
Hence correct answer is option C. $337.20
Working Note 1:
Cost reduction due to new design:
Material usage (300,000-90,000)*6=12,60,000
Assembly (20,000-6,000)*20=280,000
Ordering cost:
Salary of clerks=40,000*2=80,000
Order processing cost=1*8,000=8,000
Hnece total savings=12,60,000+280,000+80,000+8,000=$16,28,000
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