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?

Reduction in work in progress = $7500

Explanation:

given data

time = 10 hours

time = 15 hours

worth = $1,500

to find out

reduction in work in process value

solution

we find work in progress by this formula

work in progress = Flow rate * Cycle Time ... 1

so Initial work in progress is

Initial work in progress = (1 per hour) * 10 hours = 10

and Final work in progress is here

Final work in progress = (1 per hour) * 15 hours = 15

so

Initial work in progress value = 10 * 1500

Initial work in progress value = $15000

and

Final work in progress value = 15 * 1500

Final work in progress value = $22500

so

Reduction in work in progress = $22500 - $15000

Reduction in work in progress = $7500