Question

Venus Computer can produce 23,000 personal computers a year on its daytime shift. The fixed manufacturing costs per year are $2 million and the total labor cost is $9,109,000. To increase its production to 46,000 computers per year, Venus is considering adding a second shift. The unit labor cost for the second shift would be 25% higher than the day shift, but the total fixed manufacturing costs would increase only to $2.4 million from $2 million.a. Compute the unit manufacturing cost for the daytime shift.
b. Would adding a second shift increase or decrease the unit manufacturing cost at the plant?

Answer 1

Answer:

a. Unit Manufacturing costs $ 483 per unit

b. By adding a second shift, the per unit shall increase to $ 501.68 per unit.

Explanation:

to compute the unit manufacturing costs for the daytime shift, we shall have to consider the costs.

Direct labor cost                                                                           $ 9,109,000

Fixed manufacturing costs                                                          $  2,000,000

Total manufacturing costs                                                           $ 11,109,000

Units produced                                                                                      23,000

Unit Manufacturing costs                                                                       $ 483  

To answer the second part of the question, we need to determine the  unit cost with two shifts

Direct Labor Costs $9,109,000 + (125 % of $9,109,000)         $   20,677,500

Fixed manufacturing costs                                                         $     2,400,000

Total manufacturing costs                                                          $   23,077,500

Units produced                                                                                         46,000

Unit Manufacturing costs                                                            $     501.68