ii. Cost Analysis
There are four costs associated with producing the different types of cell phones. First of all, there is the cost of raw materials; this varies depending on the type of phone. Secondly, there is the cost of labor. This remains constant at 2Dhs per minute; however, the time it takes to manufacture each type of phones differs. In both these cases, the expenses are higher for special order phones. Thirdly, there is an inventory cost of 10Dhs per unit stored which is applicable to any type of phone and lastly, a back order cost is incurred for every unit which is not shipped on time. This cost is irrelevant for consumer phones as the total demand does not have to be met fully and units can be sold at any level up to the market demand. For commercial phones, back order costs are 10Dhs per unit not shipped on time, and 15Dhs per unit for all special order phones. Once an order has been accepted, the producer assumes full responsibility to ship the phones on time so as to avoid paying this penalty charge.
The following table summarizes the cost and profit figures for producing one unit of each of the different types of cell phones. All figures are in Dhs and do not take into account the cost of machine setup time (2400Dhs for commercial phones and 3600Dhs for the rest).
Labor cost Raw material cost Selling price Net Profit
consumer 8 30 55 17
commercial 6 30 50 14
top-of-the-line 16 75 120 29
medium 12 65 110 33
regular 8 55 100 37
As seen above, the special order phones are the most profitable, with regular phones pocketing as much as 37Dhs per unit produced, providing no inventory or back order costs have been incurred.
iii. Capacity Data
The machine center is currently being operated by se ...