In: Economics
2. Scaling Up/KLEM
Consider the following cost structure to make umbrellas:
Capital
10% (e.g., $1 per umbrella)
Labor
20% (e.g,, $2 per umbrella)
Energy
30% (e.g., $3 per umbrella)
Materials
40% (e.g., $4 per umbrella)
b)
Capital | 6.25% | $0.50 | per umbrella | |||
Labor | 25.00% | $2 | per umbrella | |||
Energy | 18.75% | $1.50 | per umbrella | Initially energy needs for 200 umbrella would have been 200*3 = $600. Now half of it is cost of running business so $300 is spent for heating etc.Remaining $300 is for making umbrella. Hence per umbrella cost is $300/200 = $1.5 | ||
Materials | 50.00% | $4 | per umbrella |
c)
Capital | 13.51% | $1.25 | |
Labor | 10.81% | $1 | |
Energy | 32.43% | $3 | |
Materials | 43.24% | $4 | |
Total | 100% | $9.25 | |
Percentage reduction in cost = ($10- $9.25)/$10 | |||
7.50% |