Question

C6.1 PA1 short term decision Artisan Metalworks has a bottleneck in their production that occurs within the engraving department. Jamal Moore, the COO, is considering hiring an extra worker, whose salary will be $55,000 per year, to solve the problem. With this extra worker, the company could produce and sell 3,000 more units per year. Currently, the selling price per unit is $25 and the cost per unit is $7.85. Using the information provided, calculate the annual financial impact of hiring the extra worker.

Answer 1

Answer: $4850

Explanation:

The other information related to the question is:

Direct materials = $3.50

Direct labor = $1.10

Variable overhead = $0.45

Fixed overhead = $2.80

Total = $7.85

Based on the information given in the question, the increase in the profit will be calculated as the contribution from the 3000 extra units minus the worker's salary.

Contribution from 3000 units will be:

= (Selling price - Direct materials - Direct labor - Variable overhead) × 3000

= ($25 - $3.50 - $1.10 - $0.45) × 3000

= $19.95 × 3000

= $59850

Increase on Profit:

= $59850 - $55000

= $4850