An Organization Is Considering Three Process Configuration Options

question 18

Essay

An organization is considering three process configuration options. There are two different intermittent processes, as well as a repetitive focus. The smaller intermittent process has fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger intermittent process has fixed costs of $12,000 per month and variable costs of $2 per unit. A repetitive focus plant has fixed costs of $50,000 and variable costs of $1 per unit.
a. If the company produced 20,000 units, what would be its cost under each of the three choices?
b. Which process offers the lowest cost to produce 40,000 units?
What is that cost?

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Definitions:

Sales On Account

Transactions where goods are sold and payment is deferred, creating an account receivable for the seller.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a period, indicating the efficiency of inventory management.

Financial Statements

The comprehensive reports that summarize a company's financial performance, position, and cash flows over a specific period.

Current Ratio

An assessment tool that determines an enterprise's capability to settle short-term due debts by dividing its immediate assets by its immediate liabilities.