1.
#6, p. 193 A firm plans to begin production of a new small appliance.
The manager must decide whether to purchase the motors for the appliance from a
vendor at $7 each or to produce them in-house. Either of two processes could be
used for in-house production: one would have an annual fixed cost of $160,000
and a variable cost of $5 per unit, and the other would have an annual fixed
cost of $190,000 and a variable cost of $4 per unit. Determine the range of
annual volume for which each of the alternatives would be best.
|
Source |
FC |
VC |
TC |
|
Process A |
$160,000 |
$5 |
$160,000 + $5 Q |
|
Process B |
$190,000 |
$4 |
$190,000 + $4 Q |
|
Vendor |
|
$7 |
$7 Q |
BEP: $7 Q
= $190,000 + $4 Q S! Q
=63,333
Answer:
For Q less than 63,333, the total cost is less for Vendor. For larger
quantities, Process B is better.
2. #9, p. 193 A manager must decide which type of machine to buy, A, S0 B, or C. Machine costs are:
|
Machine |
Cost |
|
A |
$40,000 |
|
B |
$30,000 |
|
C |
$80,000 |
Product forecasts and processing times on the machines are as follows:
|
|
|
Processing
Time/Unit (Minutes) |
||
|
Product |
Annual Demand |
A |
B |
C |
|
1 |
16,000 |
3 |
4 |
2 |
|
2 |
12,000 |
4 |
4 |
3 |
|
3 |
6,000 |
5 |
6 |
4 |
|
4 |
30,000 |
2 |
2 |
1 |
Assume
that only purchasing costs are being considered. Which machine would have the
lowest total cost, and how many of that machine would be needed? Machines
operate 10 hours a day, 250 days a year.
250 days/year * 10 hours/day * 60 minutes/hour = 150,000 hours/year.
|
|
Total
Processing Time by Machine |
||
|
Product |
A |
B |
C |
|
1 |
3*16,000 |
4*16,000 |
2*16,000 |
|
2 |
4*12,000 |
4*12,000 |
3*12,000 |
|
3 |
5*6,000 |
6*6,000 |
4*6,000 |
|
4 |
2*30,000 |
2*30,000 |
1*30,000 |
|
Total |
186,000 |
208,000 |
122,000 |
|
Units Needed |
=186,000/150,000 |
208,000/150,000 |
=122,000/150,000 |
|
Roundup |
2 |
2 |
1 |
|
Cost |
2*$40,000 |
2*$30,000 |
1*$80,000 |