HJM Auto Parts Makes a Muffler/pipe Assembly for a Cost

question 42

Essay

HJM Auto Parts makes a muffler/pipe assembly for a cost of $45 each ($10 fixed and $35 variable) and then sells it for $68.The opportunity exists to modify this assembly (to a more fuel efficient model) for additional direct materials and labor cost of $5 per unit.The new muffler/pipe model is expected to sell for $80.00 each.Variable selling and distribution costs would be the same at $10 per unit.Projected sales volume is 60,000 units per year for the new model, the same level of sales as for the current assembly.Labor resources are very tight at present but machine capacity is underutilized.
Required:
1.Should HJM modify the existing assembly?
2.What would be the increase/decrease in profit if HJM modifies the assembly?
3.How will the labor constraint affect the decision?

---

Definitions:

Metaphase

A phase of cell division in which the chromosomes are aligned at the spindle equator halfway between the spindle poles.

Mitosis

A process of cell division that results in two genetically identical daughter cells each having the same number of chromosomes as the parent nucleus.

Cytokinesis

The process during cell division in which the cytoplasm of a parent cell divides to form two daughter cells.

Nuclear Division

The process by which a nucleus divides, resulting in the segregation of the genome to distinct nuclei.