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A construction item has an annual demand of 100,000 units and is sold for $0.85 each. Two alternative designs are under consideration for the manufacture of this item. Either design will serve equally well and will involve the same material and manufacturing cost except for the lathe and drill operations.

- Design A will require 7 hours of lathe time and 8 hours of drill time per 1,000 units.
- Design B will require 12 hours of lathe time and 5 hours of drill time per 1,000 units.

The variable operating cost of the lathe, including labor, is $19.60 per hour. The variable operating cost of the drill, including labor, is $17.90 per hour.

Answer :

Answer:

Final answer:

The total variable operating cost for Design A is $280.40 and for Design B is $324.70.

Explanation:

To calculate the total variable operating cost for each design, we need to consider the number of units, the hours of lathe and drill time required per 1,000 units, and the variable operating cost per hour for the lathe and drill.

For Design A:

  • Lathe time per 1,000 units: 7 hours
  • Drill time per 1,000 units: 8 hours
  • Variable operating cost of lathe per hour: $19.60
  • Variable operating cost of drill per hour: $17.90

To calculate the total variable operating cost for Design A, we multiply the hours of lathe and drill time per 1,000 units by the variable operating cost per hour for each operation:

  • Total variable operating cost for lathe: 7 hours * $19.60/hour = $137.20
  • Total variable operating cost for drill: 8 hours * $17.90/hour = $143.20

Therefore, the total variable operating cost for Design A is $137.20 + $143.20 = $280.40.

For Design B:

  • Lathe time per 1,000 units: 12 hours
  • Drill time per 1,000 units: 5 hours
  • Variable operating cost of lathe per hour: $19.60
  • Variable operating cost of drill per hour: $17.90

To calculate the total variable operating cost for Design B, we multiply the hours of lathe and drill time per 1,000 units by the variable operating cost per hour for each operation:

  • Total variable operating cost for lathe: 12 hours * $19.60/hour = $235.20
  • Total variable operating cost for drill: 5 hours * $17.90/hour = $89.50

Therefore, the total variable operating cost for Design B is $235.20 + $89.50 = $324.70.

Learn more about calculating variable operating cost for alternative designs here:

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