Question

Marketing is requesting a 1,000,000 pcs/year volume and the life expectancy for this part is 5 years. Estimated part weight is 1.750 kg.

1. What will be the weekly required production rate to meet the yearly volume?
2. How many cavities are recommended for the production yearly volume required?
3. Based on your previous answer, how many normal hours and overtime hours will be required to meet the weekly production schedule.
4. Determine the piece price the first year considering the initial investment amortized on the first year of production and a 25 % gross profit.

Useful data:

Mr. “O” reported :$100,000 USD development cost.

Mr. “CASIO” reported:              MOLD: $350,000 USD for 1 Cav.

&    $550,000 for 2 cav. mold

                                       Checking fixture: $60,000 USD

                                       Secondary Equipment :$25,000 USD

Mr. “NICASIO” reported:

             Cycle time : 50 seconds

             Machine utilization cost : 3000 USD/hour

             Material Cost: $4.50 USD/LB.

             Labor Cost Normal time: 20 USD/hour

             Labor Cost overtime : 40 USD/hour

             SG&A cost : 20 USD/hour

WORK HOURS: NORMAL TIME: 3 SHIFTS OF 8 HOURS

WEEKENDS ARE OVERTIME

52 WEEKS PER YEAR.

Answer 1

1000000 PCS

52 WEEKS

A) 1000000/52=19230.769(rounding off 19231) pcs per week

B) 2 cavities are recommended for faster production of pcs.

19230.769 *50 seconds = 961538.45 seconds required weekly

Minutes required 961538.45/60=16025.64 Minutes

Hours required 16025.64/60= 267.094 Hours

Normal Hours daily 8 hours *3 shifts = 24 Hours

Working days in week 5

Total Normal hours 24*5= 120 Hours

(C) Normal Hours 120 and Overtime Hours 147.094 (267.094-120)

(D) Initial cost $550000 for 2 cavities mold checking fixture $ 60000 secondary equipment $ 25000

total intial cost = 550000+60000+25000= $ 640000

hours yearly normal hours = 120*52=6240

overtime hours =147.094*52=7648.888

Total hours = 6240 + 7648.888=13888.888

Machine utilization cost = 13888.888*3000=$41666664

Labour cost Normal = 6240* 20=$124800

Labour cost Overtiime = 13888.88*40=555555.2

Total labour cost = 124800 + 555555.2 =$ 680355.2

SG & A Cost = 20 * 13888.888 = $277777.76

Material cost = 4.50 *1000000 = 4500000

Total cost = 47764796.96/100000= 47.764

selling price =47.764 / 75*100= 63.658