Question

A production process consists of a three-step operation. The scrap rate is 13 percent for the first step and 7 percent for the other two steps.

a.If the desired daily output is 453 units, how many units must be started to allow for loss due to scrap? (Do not round intermediate calculations. Round up your final answer to the next whole number.)

Number of units ?

b.If the scrap rate for each step could be cut in half at every operation, how many units would this save in terms of the scrap allowance? (Do not round intermediate calculations. Round up your final answer to the next whole number.)

Number of units ?

c.If the scrap represents a cost of $10 per unit, how much is it costing the company per day for the original scrap rate (i.e. the Part a scrap rate)? (Round your final answer to the nearest whole number. Omit the "$" sign in your response.)

Cost $ ?

Answer 1

a. 602 units

b. 82 units

c. 1490

Explanation:

a. Schematically the process is like this:

Process A -->87% units ok--> Process B--> 93% units Ok--> Process C--> 93% units ok = 453 Units

So, if you want to know how many units mut be started, you should think it like this:

X Units*0,87*0,93*0,93= 453

So X units= 453/ (0,87*0,93*0,93)= 602 units

b. The calculation is the same but with half of the scrap, so

Process A -->93,5 units ok--> Process B--> 96,5% units Ok--> Process C--> 96,5% units ok = 453 Units

X Units*0,935*0,965*0,965= 453

So X units= 453/ (0,935*0,965*0,965)= 520 units

Then you'll be saving= 602-520= 82 units

c. if the cost is 10 $/unit, and you have 602-453= 149 units of scrap at the original scrap rate, the scrap cost will be = 149 units*10 $ / Unit= 1490 $