Bobby’s Boats makes boat toys for little girls and boys. Bobby’s Boats have identified two ways of manufacturing their newest boat model, and want to investigate which method would be more cost efficient. The below table represents costs for each process: 1. Making the boat with rubber or 2. Making the boat with plastic. For the upcoming year, they have forecasted that they will need to produce 670 boats. What would be the savings or loss to Bobby’s boats if they chose to make with plastic rather than rubber?
Please provide your answer as a whole number.
| Make with rubber | Make with plastic | |
| Variable Cost | $5 | $8 |
| Annual Fixed Cost | $6,500 | $1,560 |
Bobby’s Boats, a manufacturer of boat toys for children, is faced with a decision regarding the most cost-efficient method of producing their newest boat model. The company has identified two manufacturing processes: one involving rubber and the other utilizing plastic. To make an informed choice, Bobby’s Boats needs to assess the financial implications of each method, especially considering that they anticipate producing 670 boats in the upcoming year.
The table provided outlines the key cost components for each manufacturing process:
Making the boat with rubber:
Variable Cost: $5 per boat
Annual Fixed Cost: $6,500
Making the boat with plastic:
Variable Cost: $8 per boat
Annual Fixed Cost: $1,560
To determine the savings or loss associated with choosing plastic over rubber, we can calculate the total cost difference between these two methods. This calculation can be expressed as:
Total Cost Difference = (Variable Cost Plastic – Variable Cost Rubber) * Number of Boats + (Annual Fixed Cost Rubber – Annual Fixed Cost Plastic)
Substituting the values:
Total Cost Difference = ($8 – $5) * 670 + ($6,500 – $1,560)
Total Cost Difference = $3 * 670 + $4,940
Total Cost Difference = $2,010
Therefore, if Bobby’s Boats chooses to manufacture the boat with plastic instead of rubber, they would incur a cost savings of $2,010 for the upcoming year.
This cost analysis suggests that transitioning to the plastic manufacturing process would be financially advantageous for Bobby’s Boats, resulting in substantial savings. It’s important for the company to weigh this cost difference against other factors such as product quality, customer preferences, and environmental considerations to make a well-informed decision aligned with their overall business strategy. Nonetheless, from a cost-efficiency standpoint, making the boat with plastic appears to be the more economical choice, saving Bobby’s Boats $2,010 in the upcoming year.
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