Ambrosia Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for the 30 unit configuration and expected activity demand for the 9 part configuration are provided below: $\begin{array}{|l|l|l|l|l|}
\hline{\text { Activities }} & \text { Activity } & \text { Activity } & \text { Current } & \text { Expected } \
& \text { Driver } & \text { Capacity } & \text { Activity Demand } & \text { Activity Demand } \
\hline \text { Materials } & \begin{array}{l}
\text { pumber of } \
\text { uarts }
\end{array} & 300,000 & 300,000 & 90,000 \
\hline \text { Assembly } & \begin{array}{l}
\text { direct } \
\text { labor } \
\text { hours }
\end{array} & 20,000 & 20,000 & 6,000 \
\hline \begin{array}{l}
\text { Purchasing } \
\text { parts }
\end{array} & \begin{array}{l}
\text { orders of }
\end{array} & 20,000 & 16,000 & 8,000 \
\hline
\end{array}$
Materials usage has a rate of $6 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
If 10,000 units are being produced and the sales price is $500, what is the new sales price if the cost savings are passed on to the consumer?

Question

Quizplus · Accepted Answer

The new sales price can be calculated by first determining the cost savings from the reduction in parts and then subtracting those savings from the original sales price. 1. **Materials Cost Savings**:    - Original: 30 parts/unit * 10,000 units * $6/part = $1,800,000   - New: 9 parts/unit * 10,000 units * $6/part = $540,000   - Savings: $1,800,000 - $540,000 = $1,260,0002. **Assembly Cost Savings**:    - Since the assembly cost is directly proportional to labor hours and the demand for assembly hours is reduced from 20,000 to 6,000 (a reduction by 1/3), we can infer a similar reduction in cost.   - Original: 20,000 hours * $20/hour = $400,000   - New: 6,000 hours * $20/hour = $120,000   - Savings: $400,000 - $120,000 = $280,0003. **Purchasing Cost Savings**:    - Clerks: The number of clerks needed is reduced because the number of purchase orders decreases. However, the cost per clerk is fixed, so we calculate savings based on the reduction of purchase orders.   - Original: 16,000 orders * $1/order = $16,000   - New: 8,000 orders * $1/order = $8,000   - Savings: $16,000 - $8,000 = $8,000   - The fixed cost for clerks also changes, but since the problem does not specify the original number of clerks, we calculate based on the capacity and demand. Original demand required 16,000 orders, and with each clerk processing 5,000 orders, that's approximately 4 clerks (20,000 capacity for 4 clerks). For the new demand of 8,000 orders, only 2 clerks are needed. So, savings here are 2 clerks * $40,000/clerk = $80,000.Total Savings: $1,260,000 (Materials) + $280,000 (Assembly) + $8,000 (Purchasing orders) + $80,000 (Clerks) = $1,628,0004. **New Sales Price Calculation**:   - Total savings: $1,628,000 for 10,000 units = $162.80 savings per unit.   - Original sales price: $500   - New sales price: $500 - $162.80 = $337.20Therefore, the new sales price, if the cost savings are passed on to the consumer, is $337.20.

Ambrosia Corp Materials Usage Has a Rate of $6 Per Part and It