Question

Lean six sigma

please show calculation to show me how you get the answers please!

The Medtek Company produces parts for an electronic bed tracking system (BTS) it sells to hospitals. Every quarter a company sells 5,000 units based on a long term contract with revenue of $600,000. The total variable production cost for a contracted product amount is currently$150,000. The fixed cost for a period is $425,000. Currently a company operates with 25% defect rate coming from supply or/and production issues. The company decided to implement Six Sigma to reduce defects from 25% to 0%. That resulted in an additional spent of $300,000. Six Sigma effect is expected to last for at least 4 years. What the approximate profit of the company after implementing 6 Sigma.

A$.43,740

B.$20,315

C:$99,350

D. The six sigma cost is too high for the company and it doesn’t provide with financial benefits once implemented.

Answer 1

Ans: Option A: $.43,740.00

	BTS
Total units Sold/quarter	5000
Total revenue/quarter	$                       600,000.00
Selling price per unit	$                               120.00
Variable cost	$                       150,000.00
VC per unit	$                                 30.00
Fixed cost	$                       425,000.00
Profit	$                         25,000.00
Company currently operates with 25 % defect
Company sold (units)	5000
Manufactured 25% extra (5000/.75)	6666.67
Variable cost for units	$                                 22.50
Variable cost for 5000 units	$                       112,499.94
Quality tax paid for scrap 25% units	$                         37,499.98
Profit without cost of scrap	$                         62,500.06
It is 2.5 times higher
Cost of six sigma for 4 years or 16 quarters	300000.00
Increase in cost per quarter fixed cost (300,000/16)	$                         18,750.00
Fixed cost (425,000+18750)	$                       443,750.00
Profit (revenue-revised variable cost-revised fixed cost) =600000-(112500+443750)	$                         43,750.06

Formulas:

B. 1. BTS 2 Total units Sold/quarter 3 Total revenue/quarter 4 Selling price per unit 5 Variable cost 6 vC per unit 7 Fixed cost 5000 600,000.00 120.00 150,000.00 30.00 425,000.00 9 Profit 25,000.00 10 11 Company currently operates with 25 % defect 12 Company sold (units) 13 Manufactured 25% extra (5000/.75) 14 Variable cost for units 15 Variable cost for 5000 units 16 Quality tax paid for scrap 25% units 5000 6666.67 22.50 112,499.94 37,499.98 17 18 Profit without cost of scrap 19 |it is 2.5 times higher 62,500.06 20 21 Cost of six sigma for 4 years or 16 quarters 22 Increase in cost per quarter fixed cost (300,000/16) 23 Fixed cost (425,000+18750) 300000.00 18,750.00 443,750.00 24 Profit (revenue-revised variable cost-revised fixed cost) =600000- 25 (112500+443750) 43,750.06 26 %24