Question

Accomack Inc. manufactures tool dies, including dies B6 and B7. The plant where the dies are made is experiencing a problem with its inspection department and can only spend a limited amount of time each week inspecting these dies (the company hopes to fix the problem but is stuck with the constraint for now). Each В6 die requires 10 minutes to inspect, while each B7 die requires 14 minutes for inspection. Currently, Accomack is producing 142 B6 and 103 B7 dies per week. Inspection costs $34 per hour to do. Other costs include $4203 per week in fixed costs, $12 per die in variable costs for B6, and $11 per die in variable costs for B7. Fixed costs are allocated to the dies based on units produced. B6 sells for $25 per die, and B7 sells for $20 per die. Assume that inspection time is fully utilized. Calculate the shadow cost of an hour of inspection time (round to nearest cent, e.g. 33.33). Answer: Briefly explain why it is relevant that inspection time is fully utilized in the prior question. Limit answers to 25 words. Ignore the information in question 1 and now assume the shadow cost is $52 per hour. For B7, assume allocated fixed costs of $1391 and variable costs of $13 per unit. B7 uses 0.13 hours of inspector time per unit and has a demand curve of V = 1000 - 28P. What is the optimal price to charge for B7? The answer must be rounded to cents (eg, 39.25). Answer:

Answer 1

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a. calculation of shadow cost of an hour of inspection time B6 B7 inspection price 34 per hr units 142 103 selling price 25 20 per die inspection time 10 14 minutes Sales 3550 2060 less: cost variable cost 1704 1133 inspection cost 804.6667 817.1333 units inspection time * 34/60 contribution 1041.333 109.8667 sales - variable cost-inspection cost no. of hrs 23.66667 24.03333 shadow cost per hr of inspection 24644.89 2640.462 b. the plant is already facing problem so whatever inspection time is given by machine we have to fully utilize in product B6 and product B7 c. calculation of optimal price per unit variable cost inspection cost 52*0.13 fixed cost 1391/103 6.76 13.50485 optimal price 33.26485