APC is a contract manufacturer of printed circuit board assemblies that specializes in manufacturing and test engineering support of complex printed circuit boards for companies in the defense and medical instruments industries. The assembly process begins with raw printed circuit boards, into which preprogrammed robotic machines insert various integrated circuits and other components, and then these parts are soldered onto the board. The board is then tested before shipment to the customer.
Four separate assembly lines, each with roughly the same type of equipment, are used to assemble the circuit boards. Before running a particular board assembly, the insertion equipment must be loaded with the correct components, and the equipment programmed and tested before production begins. Setup time varies between 3 to 6 hours depending on the complexity of the board being assembled. Setup labor costs APC $ 40 per hour, and technicians assembling and testing the completed boards cost $ 28 per hour. Not every assembly line can manufacture every type of board. Some lines have older insertion and testing equipment inappropriate for more complex assemblies. The assignment of boards to assembly lines depends on the number and complexity of the component insertions, the type of soldering to be applied, and the testing required. Each assembly line has an hourly cost consisting of the accounting depreciation on the equipment (straight line) and occupancy costs (factory depreciation, taxes, insurance, and utilities). Occupancy costs are fixed with respect to volume changes. Direct labor to set up and test the line as well as the direct labor to manufacture the complete board assemblies and test each board is tracked separately to each batch of boards. The following table summarizes the costs of operating each line and the annual number of hours each line is expected to run assembling boards (excluding setup and testing time).

The equipment depreciation cost varies widely across the two lines because some of the lines (especially Line III) have older machines, some of which are fully depreciated.

a. Calculate the hourly cost of operating each of the four lines. b. One of APC’s customers, Healthtronics, has requested a special order for one of its boards APC currently builds. Healthtronics needs 150 boards by next week. These boards have to be run on Line I because that is the only one with the specialized soldering capability needed for these boards. Healthtronics will ship APC the raw boards and components to be inserted, so APC will not have to buy any of the parts. Setup time is expected to be four hours, and run time for these boards is expected to be 30 hours. Three technicians, each working 30 hours, are needed to staff Line I while the Healthtronics boards are being assembled and tested. Healthtronics splits the production of this particular board between APC and another contract manufacturer. So, if APC refuses this special offer, the customer will take the work to the other manufacturer. APC does not expect refusing this order to adversely affect Healthtronics’ demand for future APC work. If APC accepts the special order, the line will be set up next Monday during the day. The job will start Monday afternoon and be finished by Wednesday. Sixteen of the 30 hours of run time will be during an evening shift when the technicians are paid time and a half, or $ 42 an hour ($ 28 × 1.5). Calculate the cost APC will record as cost of goods sold when it ships the special order to Healthtronics.
c. Assume that accepting this special order from Healthtronics does not adversely affect the delivery schedules of any of APC’s other customers. What is APC’s out of pocket cash flow of accepting this Healthtronics special order?
d. Instead of assuming no other APC customers’ deliveries are affected by accepting the special order from Healthtronics as in part (c), assume that another APC customer, SonarTech, will be affected. SonarTech’s boards are currently running on Line I. They will have to be pulled from the line ( two hours of tear down time using setup technicians to unload the automatic parts feeders and return the parts to the storeroom), and Line I will have to be set up and tested as described in part (b). Healthtronics boards are run as in part (b). Then on Wednesday, six hours of setup time is needed to unload the remaining Healthtronics parts and reload and retest the SonarTech parts. To partially catch up on the SonarTech job, 14 hours of line run time that would have been done during the day is shifted to the evening, when the four technicians needed to run the SonarTech boards are paid time and a half ($ 42 per hour). Instead of shipping all the SonarTech boards in one shipment, two overnight shipments will be made— the first occurring when the first half is produced, and the second batch when the order is completed, costing an additional $ 2,300 of freight. SonarTech is willing to have its boards delayed a few days as long as it can receive the boards in two overnight shipments. But SonarTech is unwilling to pay the additional freight. What is the opportunity cost of accepting the Healthtronics specialorder?

  • CreatedDecember 15, 2014
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