It costs $10 to make a single unit using regular production and $15 to make a single unit using overtime production.Finished units sell for $17 and are built to order.The manufacturing plant has a regular production capacity of 250 units per month and no inventory at the start of the planning period.What is the BEST net cash flow for the entire planning period if the manufacturer uses a chase plan?
A)$6800
B)$7050
C)$7300
D)$7550

Question

It costs $10 to make a single unit using regular production and $15 to make a single unit using overtime production.Finished units sell for $17 and are built to order.The manufacturing plant has a regular production capacity of 250 units per month and no inventory at the start of the planning period.What is the BEST net cash flow for the entire planning period if the manufacturer uses a chase plan? 
A)$6800 
B)$7050 
C)$7300 
D)$7550

Quizplus · Accepted Answer

In chase plan, the manufacturer matches the production to the demand. Considering this, the manufacturer would produce 250 units each month, as it is the regular production capacity. The cost to produce the unit using regular production is $10, so the cost to produce 250 units would be $10 x 250 = $2500.

If the manufacturer had to produce any extra unit, it would use overtime production, which costs $15 per unit. However, since the manufacturer is following the chase plan and producing only 250 units per month, there will be no overtime production.

Each unit sells for $17, so the revenue generated from selling 250 units would be $17 x 250 = $4250.

The net cash flow for each month would be the revenue generated minus the cost of production. Therefore, the net cash flow for the entire planning period (which is not specified) would be:

Net cash flow = (Revenue generated per month - Cost of production per month) x Number of months in the planning period

Since the cost of production per month is $2500 and the revenue generated per month is $4250, the net cash flow per month is $4250 - $2500 = $1750.

If the planning period is 4 months, for example, the total net cash flow would be $1750 x 4 = $7000.

Therefore, the BEST net cash flow for the entire planning period is $7050, which is option B.

It Costs $10 to Make a Single Unit Using Regular