Clinton Corp. is a manufacturer of equipment used in motorcycles production. It currently produces a product with 15 parts but through redesign has reduced the number of parts to 5. Then current activity capacity and demand for the 15 part configuration and expected activity demand for the 5 part configuration are provided below:
Materials usage has a rate of $4 per part and no fixed costs. Assembly has a rate of $15 per labor our with no fixed component. Purchasing requires clerks that can process 5000 purchase orders. Each clerk earns $35,000 per year. There is also a $2 per order processing cost. The product sells for $45 and 50,000 units will be produced.
Required:
1. What is the total cost savings from the new design?
2. What is the new sales price if the cost savings are passed on to the customer?

Question

Clinton Corp. is a manufacturer of equipment used in motorcycles production. It currently produces a product with 15 parts but through redesign has reduced the number of parts to 5. Then current activity capacity and demand for the 15 part configuration and expected activity demand for the 5 part configuration are provided below:
  Materials usage has a rate of $4 per part and no fixed costs. Assembly has a rate of $15 per labor our with no fixed component. Purchasing requires clerks that can process 5000 purchase orders. Each clerk earns $35,000 per year. There is also a $2 per order processing cost. The product sells for $45 and 50,000 units will be produced.
Required:
1. What is the total cost savings from the new design?
2. What is the new sales price if the cost savings are passed on to the customer?

Quizplus · Accepted Answer

The Answer of Clinton Corp. is a manufacturer of equipment used in motorcycles production. It currently produces a product with 15 parts but through redesign has reduced the number of parts to 5. Then current activity capacity and demand for the 15 part configuration and expected activity demand for the 5 part configuration are provided below:
  Materials usage has a rate of $4 per part and no fixed costs. Assembly has a rate of $15 per labor our with no fixed component. Purchasing requires clerks that can process 5000 purchase orders. Each clerk earns $35,000 per year. There is also a $2 per order processing cost. The product sells for $45 and 50,000 units will be produced.
Required:
1. What is the total cost savings from the new design?
2. What is the new sales price if the cost savings are passed on to the customer?