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    Variable Cost Per Unit: Chemling

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    Rameez
    The document compares the costs and capabilities of two alternative production technologies, Chemling and AFU. Chemling has a lower variable cost per unit but also a lower production capacity and requires manual testing. AFU has a higher total cost per unit but can produce more units per month, tests automatically, and has immediate delivery. While Chemling's cost per unit is £8.62 more, AFU is considered a better long-term investment due to its higher production capacity and quality.

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    Variable Cost Per Unit: Chemling

    Uploaded by

    Rameez
    213 views2 pages
    The document compares the costs and capabilities of two alternative production technologies, Chemling and AFU. Chemling has a lower variable cost per unit but also a lower production capacity and requires manual testing. AFU has a higher total cost per unit but can produce more units per month, tests automatically, and has immediate delivery. While Chemling's cost per unit is £8.62 more, AFU is considered a better long-term investment due to its higher production capacity and quality.

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    Chemling

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    The document compares the costs and capabilities of two alternative production technologies, Chemling and AFU. Chemling has a lower variable cost per unit but also a lower production capacity and requires manual testing. AFU has a higher total cost per unit but can produce more units per month, tests automatically, and has immediate delivery. While Chemling's cost per unit is £8.62 more, AFU is considered a better long-term investment due to its higher production capacity and quality.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    213 views2 pages

    Variable Cost Per Unit: Chemling

    Uploaded by

    Rameez
    The document compares the costs and capabilities of two alternative production technologies, Chemling and AFU. Chemling has a lower variable cost per unit but also a lower production capacity and requires manual testing. AFU has a higher total cost per unit but can produce more units per month, tests automatically, and has immediate delivery. While Chemling's cost per unit is £8.62 more, AFU is considered a better long-term investment due to its higher production capacity and quality.

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    Chemling 

    AFU
    Variable Cost per unit £750 £600
    No. of Units per month 105 kg 140 kg
    Capacity 98% 99.5%
    Number of Units On Capacity 105*98%= 102.9 140*99.5%=139.3
    Total Variable Cost £77,175 £83,580
    Fixed Cost £15,000  £40,000
    Total Cost per month £92,175 £123,580
    Total Cost per unit = Total Cost per month /
    Number of Units On Capacity £895.77 £887.15

    £895. £77-887.15= £8.62

    AFU Total cost per unit is 887.15 but Chemling price is 895.77 which is £8.62 higher the AFU.

    Evaluating the two alternative technologies according to their features and the long term
    valuation, the new Chemling is manual testing unlike AFU that is automatically testing.
    Furthermore new chemling also required six technicians to run the machine. Also, the delivery
    for the AFU is immediate and Chemling delivery is after three months. So the AFU is more
    feasible. The AFU technology is how all future similar technologies will be. Marketing Manager
    requires right quantity and quality which he gets through the new automatic machine without
    delay. By the acceptability of the technology the company will improve the competitiveness and
    will give a return on investment as well as adding to the resource base.

    Manufacturing operation has to bear in mind that, the unit cost of the product is a critical factor in
    measuring performance. In the case of the Rochem Ltd, the Chemling’s machine total cost per unit is
    £8.62 higher. So, as a long term investment the AFU is more profitable. Both machines produce same
    product but AFU produce with less cost and better quality with high production. But a thing to keep in
    mind the after sales services of AFU which are not known yet.

    I recommend company to go with AFU. Because it produce more number of units then previous one with
    better quality. Although the price and Fixed cost of AFU is more than Chemling but it also produces more
    number of units which decrease per unit cost. Delivery of AFU is immediate while Chemling delivery is
    after three months. In the span of these three months what to do with the demand of company? Is
    customers left over for competitors? Absolutely not they should buy AFU and produce on full capacity.

    Estimates suggested that in Next months or years the market of £5 million will be expand into £6 million.
    Now product cover 48% of the market but with the better quality of the product this 48% can be increase.
    Rather than waiting for 3 months and losing customers company should go and buy AFU and meet the
    current demand and preserve if extra capacity.
    The use of AFU machine facilitate or initiated to increase the quality of goods and products.
    Therefore the increase in quality, definitely led to the raise of the demand for such product and
    also expanding the capacity of the product which is being occupied by the market since the
    variance products are sold.

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