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A local assembly operation for a consumer appliance manufacturer has fixed costs of $5000 a day. Variable costs are about $1 per unit for materials and $3.50 per unit for labor on the first production shift. Given the shift differential (due to increased pay on the second and third shifts), increased costs of supervision, and other variable overhead costs, managers estimate the marginal cost per unit (excluding materials) to be $5.00 on the second shift and $7.25 on the third shift. The plant can produce up to 2000 units per shift. Use a spreadsheet (like the one below) to put together a worksheet. What is the plant's best operating level? How many units must be assembled before the operation makes a profit? At what volume is the plant's total profit maximized?
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