Tour company has been asked to prepare an estimate sales price for a new muffler design. Here are some relevant data:
- Labor cost- $18/hour
- Material costs- $42/muffler
- Overhead costs- 75% of direct materials and labor costs
- Desired Profit- 22% of total manufacturing cost including overhead
Yor did some sampling and the time to produce the 30th muffler was 1.5 hours. You have decided to use the 30th muffler produced as your estimate for the future labor time required per muffler.
a) What is your estimate for sales price?
b) If the current CPI value is 125 and in 5 years it is expected to be 140, what will the sales price be in 5 years is we assume the price moves with the CPI?
c) The plant to build these mufflers has a power seize exponent of 0.7. Now, it costs $20 million to build a plant that makes 0.5 mufflers. How much will it cost in 5 years to build a plant that can produce 1.5 million mufflers? As before, CPI today is 125 and CPI 5 years from now is estimated to be 140.