Question

Four holes must be drilled in a casting which forms the housing for an electric motor. The holes may be located and drilled without the aid of a jig by a skilled machinist whose wage rate is $26 per hour. His production time will be 3.5 minutes per housing. A jig could be built at a cost of $600 permitting the holes to be drilled by a machinist at a lower skill level. In this case the lower wage rate would be $19 per hour and the production rate would be four minutes per housing. Which alternative would you recommend if 2,200 housings are to be produced?
b)The total production cost using no jig with a skilled machinist is?

Answer 1

Option A:

When there is no jig, then a skilled machinist is required to produce a housing. This skilled machinist takes 3.5 minutes for each housing and charges $26 for every hour. If 2,200 such housings are to be produced then total time taken will be: 2,200 * 3.5 = 7,700 minutes or 128.33 hours. Thus, total time worked by skilled machinist will be 128.33 hours for which he will take total of: $3.336.67.

Option B:

A jig is built at the cost of $600 and now a lower skilled machinist will do. This machinist will take 4 minutes to produce one housing and charge $19 per hour. Thus, total time devoted by the worker for 2,200 housings will be: 2,200*4 = 8,800 minutes or 146.67 hours. At the cost of $19 per hour, the total worker charge will be: $2,786.67. If we add the $600 to this, then we get the total cost of production of 2,200 housings with jig and that is: $3,386.67.

Option B costs $50 more than Option A, hence, A is the better option i.e. employing a skilled worker without jig is more cost efficient.

Thanks!