A business is considering expanding its product range to include a more upmarket version of its tablet PC. The labour required to make the tablet will come from two types of people, programmers and engineers.
Programmers will be needed for 2,400 hours. There are 10 programmers working for the business in contracts demanding 40 hours work per week for 48 weeks. The business feels that 95% utilisation is acceptable and presently the programmers are operating at 93%. Extra programmers are available from an agency at an hourly cost of $35/hr.
The engineers are fully utilised, and in short supply. The only way to source the 200 hours needed to set up the production line is to divert existing engineers from another product. Production of this other product will be delayed, meaning a penalty clause in a customer contract will be triggered costing $4,000. Additionally, the engineers are paid $20/hr and the contribution earned on the delayed products is $8,200.
What is the total relevant cash flow for the programmers and the engineers for this project?
A $88,000
B $74,560
C $96,200
D $82,760
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It is implied from the question that hours can be found for the project from internal programmers by increasing their utilisation levels fom 93% to 95%.
Beyond this the remaining hours need to be provided by agency at agency cost for programmers.
In terms of the engineers the relevant costs are the lost contribution and the penalty clause that will be triggered.
Increased agency utilisation of programmers
Currently (10 x 40 x 48)×0.93=17856 hours.
Increase programmers utilisation to 95%
(10 x 40 x 48) x 0.95 =18240 hours.
Hours available through increased utilisation = 18240-17856=384 hours extra available for project.
2400 hours - 384 hours= 2016 hours needed by agency programmers.
2016 x $35= $70560
Engineer costs = penalty costs plus lost contribution cost.
Penalty $4000
Lost contribution =$8200
Total=$12200
Total relevant cost=$70560 +$12200=$82760.
Welcome to the Opentuition forums. Hope the above helps.
1y ago#11Why did you not include $20/ hour of engineer?
1y ago#12plss help!!!!
I didn't include it as it would be paid anyway. It's therefore not a relevant cost.
Only costs and revenues impacted by the decision at hand should be considered relevant.
1y ago#15Thank u
You are welcome.
Cam Co manufactures webcams and is about the launch a new version of its product, the Webcam X, for which the following information is available:
Projected lifetime sales volume 50,000 units
Product development costs (already incurred) $1,250,000
Marketing costs $1,750,000
Manufacturing costs per unit, based on the prototype, are as follows:
$
Direct material 40
Direct labour 26
Machine costs 21
Quality control costs 10
Rework costs 3
Total manufacturing costs per unit 100
The procurement officer has stated that the materials can be sourced from another supplier, reducing direct material costs by 10%.
What is the lifecycle cost per unit?
A.$121
B.$131
C.$156
D.$160
This is the question in study hub the thing i dont understand is why have we taken reduced material price while it states that director can source from another supplier which means he hasnt taken the price yet?
Welcome to the Opentuition forums. Since it's a lower price and likely to be taken, then that's the cost that is used barring any additional contrary information that does not exist in the above scenario.
Thank you very much got it
You are welcome.
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