Calculate the total cost to meet the demand using a level production plan with overtime. Once overtime is approved the workers are on the job 12 hours each day for the full period. Each unit that cannot be completed with a level product plan costs the firm $150. Assume that the employees can only finish a whole unit and round up/down accordingly.
A) $72,960
B) $73,460
C) $75,870
D) $76,800
E) $77,175

Question

Quizplus · Accepted Answer

To find the total cost, we need to follow these steps:
1. Calculate the production rate per day (average demand per day).
Production rate = (Total demand for the month) / Number of working days
= (3000 + 2000 + 2500 + 3500) / 20
= 325 units per day
2. Calculate the regular time production per day (8 hours).
Regular time production = Production rate * Regular time
= 325 * 8
= 2600 units per day
3. Calculate the overtime production per day (4 hours).
Overtime production = Production rate * Overtime
= 325 * 4
= 1300 units per day
4. Calculate the total cost of regular time production.
Total cost of regular time production = Regular time units * Regular time cost per unit
= 2600 * $50
= $130,000
5. Calculate the number of units that cannot be produced with a level production plan.
Total demand - Regular time production = (3000 + 2000 + 2500 + 3500) - 2600 * 20
= 2500 units
Round up to 3000.
6. Calculate the total cost of overtime production.
Total cost of overtime production = Overtime units * Overtime cost per unit
= 3000 * $75
= $225,000
7. Calculate the cost of units that cannot be produced with a level production plan.
Cost of units that cannot be produced with a level production plan = Extra units * Cost per unit
= 500 * $150
= $75,000
8. Calculate the total cost of meeting the demand.
Total cost = Regular time cost + Overtime cost + Extra cost
= $130,000 + $225,000 + $75,000
= $430,000
Therefore, the best choice is C.

Calculate the Total Cost to Meet the Demand Using a Level