Finally there is a sunk cost of 5000 for design a and 9000, Ask an Expert

Economics

Two alternative designs are under consideration for a tapered fastening pin. The fastening pins are sold for $0.70 each. Either design will serve equally well and will involve the same material and manufacturing costs, EXCEPT for the lathe and drilling operations.

Design A: requires 16 hours of lathe time and 4.5 hours of drill time per 1,000 units.
Design B: requires 7 hours of lathe time and 12 hours of drill time per 1,000 units.

The variable operating cost of the lathe, including labor, is $16.00 per hour; the variable operating cost of the drill, including labor, is $16.90 per hour. Finally, there is a sunk cost of $5,000 for Design A and $9,000 for Design B due to obsolete tooling.

Which design should be adopted if 125,000 units are sold each year?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M953609

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