Question

In: Accounting

Samsung manufactures cellular phones at a processing cost of $204 per unit. Currently, the company produces...

Samsung manufactures cellular phones at a processing cost of $204 per unit.
Currently, the company produces an average of 2011 phones per day, 88 percent of which are good-quality phones, resulting in 12 percent defective phones, 66 percent of which can be reworked. The cost of reworking a defective phone is $74.

They also consider a quality improvement initiative: They can replace a plastic component with a metal one which increases the initial cost of processing phone to $210, but the percentage of defective items decreases to 12 percent. With this quality improvement option, nothing else would be different from the current situation (for example the cost of rework and the percentage of defectives that can be reworked stay the same).

Calculate the followings:

Number of units reworked daily with current situation

Daily product yield with current situation

Effective production cost per unit with current situation

With the current situation, if the company wants the yield to be 2000, how many phones they should process daily?

Number of units reworked daily with suggested quality improvement option

Daily product yield with suggested quality improvement option

Effective production cost per with suggested quality improvement option

Should Samsung should take the suggested quality improvement initiative?
Yes
No

Expert Solution

Number of units reworked daily in current situation:

Daily product yield is nothing but the amount of output that the company generates. It would be the good units plus the reworked units.

Therefore, daily product yield = 2011*88% +159 = 1,929

Effective production cost per unit is as below:

If yield should be 2000, number of phones to produce ca be calculated as below:

Assume no of phones to be produced as "A". The yield formula = A x 88% + A x 12% x 66% = 2000

From the above, we can calculate A. Therefore, company should produce 2,085 units in order to have a yield of 2,000.

Number of units reworked with quality improvement option: Since the percentage of defective is 12%, the number of units reworked would be 2011*12%*66% = 159

Daily product yield= 2011*88% + 2011*12%*66% = 1,929

Effective production cost per unit after quality improvement =

Samsung should not take the suggested quality improvement initiative as there is an increase in the effective production cost per unit. Also, there is no change in the percentage of defective items. It was 12% in the old scheme and it is 12% even after the initiative.

ekkarill92 answered 1 year ago

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