Figure 11-1 Clinton 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:
Materials usage has a rate of $5 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.
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Refer to Figure 11-1.What is the cost savings from purchasing parts?

Question

Figure 11-1 Clinton 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:
 Materials usage has a rate of $5 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.
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Refer to Figure 11-1.What is the cost savings from purchasing parts?

Quizplus · Accepted Answer

The cost savings from purchasing parts is $88,000 as indicated in Figure 11-1.