Product Dune is being produced on both first and second shifts by company Digby. Compare the incremental cost of purchas
Posted: Fri Jul 01, 2022 9:08 am
Product Dune is being produced on both first and second shiftsby company Digby. Compare the incremental cost of purchasing anadditional unit of first shift capacity with the additional laborcosts of producing that unit on second shift. It costs $3.19/unitin labor to produce Dune on first shift, second shift labor costsare 50% higher. At the current automation level of 8.5 it costs$40.00/unit of first shift capacity. Assume the only fixed costs ofpurchasing first shift capacity will be Depreciation on a 15 yearstraight line. Ignore material costs and SG&A expenses whichare the same on both shifts. Which of the following statements aretrue?
Producing units on first shift is always more profitablethan second shift because second shift labor rates are higher.
At the current automation level it would be lessprofitable to pay second shift rates than to buy more capacity.
At the current automation level it would be moreprofitable to pay second shift rates than to buy more capacity.
It is always more profitable to produce on second shiftrather than buying more capacity.
Producing units on first shift is always more profitablethan second shift because second shift labor rates are higher.
At the current automation level it would be lessprofitable to pay second shift rates than to buy more capacity.
At the current automation level it would be moreprofitable to pay second shift rates than to buy more capacity.
It is always more profitable to produce on second shiftrather than buying more capacity.