Question

Question: A firm has redesigned its production process so that it now takes 10 hours for a unit to be made. Using the old process, it took 15 hours to make a unit. If the process makes one unit each hour on average and each unit is worth $1,500, what is the reduction in work-in-process value?

Short answer

Answer

The information provided about the process is as follows:

Previous production time to make a single unit =15 hours

Present production time to make a single unit =10 hours

Step-by-step solution

The work in progress in the initial and final stages is

Work in progress (WIP) = Flow rate x Cycle time

Final WIP = (1 In per hour) x 15 hour = 15

Initial WIP = (1 In per hour) x 10 hour = 10

The value of the work in progress is

Initial WIP Value = 10 x 1500= 15,000

Final WIP Value = 15 x 1500= 25,500

The reduction in work process value is

Reduction in WIP = 22,500-15,000

= $ 7,500

Hence, the reduction in work in process value is $7,500