ENGINEERING ECONOMIC ENHANCED EBOOK
ENGINEERING ECONOMIC ENHANCED EBOOK
14th Edition
ISBN: 9780190931940
Author: NEWNAN
Publisher: OXF
Question
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Chapter D, Problem 139P
To determine

The rank of product lines from lowest to highest in terms of manufacturing cost per unit.

Expert Solution & Answer
Check Mark

Answer to Problem 139P

The correct option is (b)3-1-2-4.

Explanation of Solution

Given:

Data Line 1 Line 2 Line 3 Line 3
Annual production 4000 3500 9800 675
Cost of direct materials 800 650 1200 2500
Cost of direct labor 3500 3750 600 320

Calculation:

Write the expression to calculate the direct cost of product lines.

DC=(Costofmaterials)+(Costofdirectlabor) ...... (I)

Here, the direct cost is DC.

Substitute $800,000 for Cost of materials and $3,500,000 for Cost of direct labor in Equation (I) for line 1.

DC1=$800,000+$3,500,000=$4,300,000

Substitute $650,000 for cost of materials and $3,750,000 for Cost of direct labor in Equation (I) for line 2.

DC2=$650,000+$3,750,000=$4,400,000

Substitute $1,200,000 for cost of materials and $600,000 for Cost of direct labor in Equation (I) for line 3.

DC3=$1,200,000+$600,000=$1,800,000

Substitute $2,500,000 for cost of materials and $320,000 for Cost of direct labor in Equation (I) for line 4.

DC4=$2,500,000+$320,000=$2,820,000

Write the expression to calculate total cost for line 1.

TC1=DC1+$10,800,000(DC1DC1+DC2+DC3+DC3) ...... (II)

Here, the total cost is TC.

Substitute $4,300,000, for DC1, $4,400,000 for DC2, $1,800,000 for DC3, $2,820,000 for DC4 in Equation (II).

TC1=$4,300,000+$10,800,000( $4,300,000 $4,300,000+$4,400,000 +$1,800,000+$2,820,000 )=$4,300,000+$10,800,000(0.32282)=$4,300,000+$3,486,486.486=$7,786,486.486

Write the expression to calculate the manufacturing cost per unit for line 1.

AC1=TC1Totalunitsproducedatline1 ...... (III)

Here, the average cost is AC.

Substitute, $7,786,486.486 for TC1 and 4000 for total units produced at line 1 in Equation (III).

AC1=$7,786,486.4864,000=$1,946.62

Write the expression to calculate total cost for line 2.

TC2=DC2+$10,800,000(DC2DC1+DC2+DC3+DC3) ...... (IV)

Substitute $4,300,000, for DC1, $4,400,000 for DC2, $1,800,000 for DC3, $2,820,000 for DC4 in Equation (IV).

TC2=$4,400,000+$10,800,000( $4,400,000 $4,300,000+$4,400,000 +$1,800,000+$2,820,000 )=$4,400,000+$10,800,000(0.33)=$4,400,000+$3,567,567.568=$7,967,567.568

Write the expression to calculate the manufacturing cost per unit for line 2.

AC2=TC2Totalunitsproducedatline1 ...... (V)

Substitute $7,786,486.486 for TC2 and 4000 for total units produced at line 2 in Equation (V).

AC2=$7,967,567.5683,000=$2,655.855

Write the expression to calculate total cost for line 3.

TC3=DC3+$10,800,000(DC3DC1+DC2+DC3+DC3) ...... (VI)

Substitute $4,300,000, for DC1, $4,400,000 for DC2, $1,800,000 for DC3, $2,820,000 for DC4 in Equation (VI).

TC3=$1,800,000+$10,800,000( $1,800,000 $4,300,000+$4,400,000 +$1,800,000+$2,820,000 )=$1,800,000+$10,800,000(0.1351)=$1,800,000+$1,459,459.45=$3,259,459.459

Write the expression to calculate the manufacturing cost per unit for line 3.

AC3=TC3Totalunitsproducedatline1 ...... (VII)

Substitute $7,786,486.486 for TC3 and 4000 for total units produced at line 3 in Equation (VII).

AC3=$3,259,459.4599,800=$332.597

Write the expression to calculate total cost for line 4.

TC4=DC4+$10,800,000(DC4DC1+DC2+DC3+DC3) ...... (VIII)

Substitute $4,300,000, for DC1, $4,400,000 for DC2, $1,800,000 for DC3, $2,820,000 for DC4 in Equation (VIII).

TC4=$2,820,000+$10,800,000( $2,820,000 $4,300,000+$4,400,000 +$1,800,000+$2,820,000 )=$2,820,000+$10,800,000(0.2117)=$2,820,000+$2,286,486.486=$5,106,486.486

Write the expression to calculate the manufacturing cost per unit for line 4.

AC4=TC4Totalunitsproducedatline1 ...... (IX)

Substitute $7,786,486.486 for TC4 and 4000 for total units produced at line 4 in Equation (IX).

AC4=$5,106,486.486675=$7,565.16

The product lines are ranked on the basis of average cost from lowest to highest.

3<1<2<4.

Conclusion:

Therefore, the correct option is (b)3-1-2-4.

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Chapter D Solutions

ENGINEERING ECONOMIC ENHANCED EBOOK

Ch. D - Prob. 11PCh. D - Prob. 12PCh. D - Prob. 13PCh. D - Prob. 14PCh. D - Prob. 15PCh. D - Prob. 16PCh. D - Prob. 17PCh. D - Prob. 18PCh. D - Prob. 19PCh. D - Prob. 20PCh. D - Prob. 21PCh. D - Prob. 22PCh. D - Prob. 23PCh. D - Prob. 24PCh. D - Prob. 25PCh. D - Prob. 26PCh. D - Prob. 27PCh. D - Prob. 28PCh. D - Prob. 29PCh. D - Prob. 30PCh. D - Prob. 31PCh. D - Prob. 32PCh. D - Prob. 33PCh. D - Prob. 34PCh. D - Prob. 35PCh. D - Prob. 36PCh. D - Prob. 37PCh. D - Prob. 38PCh. D - Prob. 39PCh. D - Prob. 40PCh. D - Prob. 41PCh. D - Prob. 42PCh. D - Prob. 43PCh. D - Prob. 44PCh. D - Prob. 45PCh. D - Prob. 46PCh. D - Prob. 47PCh. D - Prob. 48PCh. D - Prob. 49PCh. D - Prob. 50PCh. D - Prob. 51PCh. D - Prob. 52PCh. D - Prob. 53PCh. D - Prob. 54PCh. D - Prob. 55PCh. D - Prob. 56PCh. D - Prob. 57PCh. D - Prob. 58PCh. D - Prob. 59PCh. D - Prob. 60PCh. D - Prob. 61PCh. D - Prob. 62PCh. D - Prob. 63PCh. D - Prob. 64PCh. D - Prob. 65PCh. D - Prob. 66PCh. D - Prob. 67PCh. D - Prob. 68PCh. D - Prob. 69PCh. D - Prob. 70PCh. D - Prob. 71PCh. D - Prob. 72PCh. D - Prob. 73PCh. D - Prob. 74PCh. D - Prob. 75PCh. D - Prob. 76PCh. D - Prob. 77PCh. D - Prob. 78PCh. D - Prob. 79PCh. D - Prob. 80PCh. D - Prob. 81PCh. D - Prob. 82PCh. D - Prob. 83PCh. D - Prob. 84PCh. D - Prob. 85PCh. D - Prob. 86PCh. D - Prob. 87PCh. D - Prob. 88PCh. D - Prob. 89PCh. D - Prob. 90PCh. D - Prob. 91PCh. D - Prob. 92PCh. D - Prob. 93PCh. D - Prob. 94PCh. D - Prob. 95PCh. D - Prob. 96PCh. D - Prob. 97PCh. D - Prob. 98PCh. D - Prob. 99PCh. D - Prob. 100PCh. D - Prob. 101PCh. D - Prob. 102PCh. D - Prob. 103PCh. D - Prob. 104PCh. D - Prob. 105PCh. D - Prob. 106PCh. D - Prob. 107PCh. D - Prob. 108PCh. D - Prob. 109PCh. D - Prob. 110PCh. D - Prob. 111PCh. D - Prob. 112PCh. D - Prob. 113PCh. D - Prob. 114PCh. D - Prob. 115PCh. D - Prob. 116PCh. D - Prob. 117PCh. D - Prob. 118PCh. D - Prob. 119PCh. D - Prob. 120PCh. D - Prob. 121PCh. D - Prob. 122PCh. D - Prob. 123PCh. D - Prob. 124PCh. D - Prob. 125PCh. D - Prob. 126PCh. D - Prob. 127PCh. D - Prob. 128PCh. D - Prob. 129PCh. D - Prob. 130PCh. D - Prob. 131PCh. D - Prob. 132PCh. D - Prob. 133PCh. D - Prob. 134PCh. D - Prob. 135PCh. D - Prob. 136PCh. D - Prob. 137PCh. D - Prob. 138PCh. D - Prob. 139P
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