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Dan Barker, the chief engineer, told Ms. Silva that the company is currently making 150 units of Model Diamond per batch and 245 units of Model Gold per batch. He suggests doubling the batch sizes to cut the number of setups in half, thereby reducing the setup cost by 50 percent. Compute the cost per unit for each product if Ms. Silva adopts his suggestion.

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azikennamdi

The cost per unit for each product is given as:
x ≈ 0.0067; and

y ≈ 0.0041. See explanation below.

What is the cost per unit for each product?

Given that the current production:

  • Model Diamond (Md) - 150 Units
  • Model Gold (Mg) - 245 Units

Current cost of production is given as:

Current Total Cost = 150y + 245x where;

  • x is the cost of producing one unit of Model Gold, and
  • y is the cost of producing one unit of Model Diamond.

if doubling the batch sizes will reduce the cost per unit by 50% then the new cost equation will be:

Thus, New Total Cost of production = (150 x 2) (y/2) + (245 x 2) (x/2)

= (300)(y/2) + (490) (x/2)

Since we are looking for the cost per unit of each product:

f(x) = 300 * (x/2)..........Unit cost of Model Gold

If we make x subject of the formula, then we arrive at:
1/300 = x/2
x = (1/300) * 2

x = 0.00666666666

x ≈ 0.0067

f(x) = 490* (x/2)

If we make y subject of the formula, then we arrive at:

i/490 = y/2

y = (1/490) * 2

y = 0.00408163265306122448979591836735

y ≈ 0.0041

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