Task:
The Company produces a component that is subsequently used in the aerospace industry. The component consists of three parts (A, B, and C) that are purchased from outside and cost 40, 35, and 15 cents per piece respectively. Parts A and B are assembled first on assembly line 1, which produces 140 components per hour. Part C undergoes a drilling operation before being finally assembled with the output from assembly line 1. There are in total six drilling machines, but at present only 3 of them are operational. Each drilling machine drills part C at a rate of 50 parts per hour. In the final assembly, the output from assembly line 1 is assembled with the drilled part C. The final assembly line produces at a rate of 160 components per hour. At present, components are produced eight hours a day and five days a week.
Costs:
The cost of assembly labor is 30 cents per part of each assembly line; the cost of drilling labor is 15 cents per part. For drilling, the cost of electricity is 1 cent per part. The total overhead cost has been calculated as $1,200 per week. The depreciation cost for equipment has been calculated as $30 per week.
Questions:
1) Suppose a second shift of eight hours is run for assembly line 1 and the same is done for the final assembly line. In addition, four of the six drilling machines are made operational. The drilling machines, however, operate for just eight hours per day. What is the cost per unit output? (everything should be in per week)
2) Management decides to run a second shift of eight hours for assembly line 1 plus a second shift of only four hours for the final assembly line. Five of the six drilling machines operate for eight hours per day. What is the cost per unit output?