A Cement Company Is Considering How to Expand Its Capacity

question 1

Essay

A cement company is considering how to expand its capacity and they are examining the use of overtime or subcontracting on a quarterly basis as possible options.They have the following information about their operation:
Aggregate demand = 30,000; 25,000; 27,000; and 31,000
Maximum capacity = 25,000 units
Labor standard = 2.45 hours/unit
Cost of overtime = $10.50/hour
Cost of subcontracting = $25.00/unit
a.What is the cost of overtime in quarter 1?
b.What is the total cost of subcontracting over four quarters?

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Definitions:

Production Possibilities Frontier

An illustration representing the optimal production capabilities for a pair of items, using specific resources and conditions.

Economic Growth

An increase in the production of goods and services in an economy over a period of time, indicating a rise in the standard of living.

Productive Efficiency

A situation where the economy or an enterprise is producing goods and services at the lowest possible cost.

Maximum Possible Output

Refers to the highest level of production an economy can sustain over a period without increasing inflation, often determined by available resources and technology.