Question

Venus Robotics can produce 25,000 robots a year on its daytime shift. The fixed manufacturing costs per year are $2.3 million and the total labor cost is $9.5 million. To increase its production to 50,000 robots per year, Venus is considering adding a second shift. The unit labor cost for the second shift would be 15% higher than the day shift, but the total fixed manufacturing costs would increase only to $2.8 million from $2.3 million. Compute the unit manufacturing cost for the daytime shift. Would adding a second shift increase or decrease the unit manufact

Answer 1

Answer:

The unit manufacturing cost for the daytime shift is $472. Adding a second shift would decrease the unit manufacturing cost to $464.5.

Explanation:

Given that Venus Robotics produces 25,000 robots per year on its day shift, its fixed costs are $ 2,300,000 and its labor costs are $ 9,500,000, the cost per unit produced during this shift is $ 472 ((2,300,000 + 9,500,000) / 25,000) .

Now, to produce another 25,000 robots in the night shift, labor costs will be 15% higher, reaching about $ 10,925,000 (9,500,000 x 1.15), but fixed costs will only increase by about $ 500,000, reaching $ 2,800,000. Thus, the fact of producing these robots in a night shift would imply that the total costs per unit between both shifts will be $ 464.5 ((2,800,000 + 9,500,000 + 10,925,000) / 50,000), with which it is economically feasible to add said production shift.