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Four holes must be drilled in a casting which forms the housing for an electric motor
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 $29 per hour. His production time will be 2.5 minutes per housing. A jig could be built at a cost of $500 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 three minutes per housing. Which alternative would you recommend if 3,000 housings are to be produced? The total production cost using a jig with a less skilled machinist is S (Round to the nearest dollar)
Expert Solution
Answer:
It incurs less cost when skill machinist proceeds to make 3000 housings. Let us see how.
For skilled machinist to make 3000 housings needs 2.5 minutes each and hence 3000*2.5 = 7500 minutes which is also equal to 125 hours.
Wage per hour is $29
Therefore total cost = 29* 125= $3635
Now, For Lower skill machinist, Fixed cost to bulid a jig = $500
he takes 3 minutes for each housing , hence 3 * 3000 = 9000 minutes which is equal to 150 hours
150 hours * $19per hour = $3320
Total cost using a jig with less skilled machinist = $3320 + $500 = $3820
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