Metters Cabinels, Inc, noeds to choose a production mothod for its new office sh

Question

Metters Cabinels, Inc, noeds to choose a production mothod for its new office sheil, the Maxistand. T frm has gathered the following production cosl data: Annualized Flxed Cost of Plant & Equipment Variable Costs (per unt) (5) Process Type Mass Customization 1,260,000 $1,000,000 $1,625,000 $2,000,000 Labor 30 24 28 25 26 15 20 12 Metters Cabinets projects an annual demand of 60,000 units for the Maxistand. The seling price for the Maxistand in $120 per a) Based on the projected annual demand, the best altemative available is to use the Click to select your answerls) and then click Check Answer Clear All

Explanation / Answer

A.

Annual demand = 60000 units

For mass customization process, total cost = 1260000 + 60000*(30+18+12) = $4860000

For intermittent process, total cost = 1000000 + 60000*(24+26+20) = $5200000

For repetitive process, total cost = 1625000 + 60000*(28+15+12) = $4925000

For continuous process, total cost = 2000000 + 60000*(25+15+10) = $5000000

Since the lowest total cost is given by mass customization process at the annual demand level of 60000 units. So, best alternative to be used are mass customization process.

B.

Value of the annual profit using mass customization process = Total revenue – total cost

Value of the annual profit using mass customization process = 60000*120 – 4860000

Value of the annual profit using mass customization process = $2340000

On a similar note,

Annual profit using intermittent process = 60000*120-5200000 = $2000000

Annual profit using repetitive process = 60000*120-4925000 = $2275000

Annual profit using continuous process = 60000*120-5000000 = $2200000

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