Based on the Question 1, we can calculate the total cost of custom shirts to be made each month. Total Cost for custom shirts is Direct Labour cost multiplied by number of units produced. For Ike, it is $7.68*2000 = $15360 whereas for Mike, it is $3.47 x 2000 = $6940. $8420 cost difference is in favour of Mike’s plan.
Production of regular shirts on the other hand are cheaper using Ike’s process. $54,880 for Ike ($3.43 x 16000) but $55520 for Mike’s plan ($3.47 x 16000). But difference between the two is only $640 which is insignificant when compared to cost difference in Custom shirts.
Hence Mike’s plan seems superior based on the cost incurred. This can be attributed to increase in efficiency from 83% to 93.75% in Mike’s plan. Mike has also increased labour efficiency by 7.31%.
Capacity in Ike’s custom shirts production line is under-utilized but he over-utilizes capacity in his regular shirt production line which incurs additional cost for Over Time.
Though we can achieve the production targets using both Ike’s and Mike’s methods, Mike’s method seems preferable. Mike’s proposal can help Dwight Collier’s organisation to produce custom shirts through more efficient process which can in turn make lucrative profits for the company.