Scribd Logo
Upload

Welcome to Scribd!

  • 40 views

    Capacity Problem1

    Uploaded by

    Ahmed Zaman
    The manager must decide between machine A, B, or C to purchase based on costs and production needs. Machine A costs $114,000 with a 7 year life. Machine B costs $80,000 with a 5 year life. Machine C costs $150,000 with a 6 year life. Considering costs, processing times, and annual demand for 4 products, the optimal choice is machine B, purchasing 2 machines to minimize total costs over the 5 year period. When hourly operating costs are considered, machine C is optimal, purchasing 3 machines to minimize total costs while meeting capacity requirements.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Capacity Problem1

    Uploaded by

    Ahmed Zaman
    40 views3 pages
    The manager must decide between machine A, B, or C to purchase based on costs and production needs. Machine A costs $114,000 with a 7 year life. Machine B costs $80,000 with a 5 year life. Machine C costs $150,000 with a 6 year life. Considering costs, processing times, and annual demand for 4 products, the optimal choice is machine B, purchasing 2 machines to minimize total costs over the 5 year period. When hourly operating costs are considered, machine C is optimal, purchasing 3 machines to minimize total costs while meeting capacity requirements.

    Original Title

    Capacity_problem1

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The manager must decide between machine A, B, or C to purchase based on costs and production needs. Machine A costs $114,000 with a 7 year life. Machine B costs $80,000 with a 5 year life. Machine C costs $150,000 with a 6 year life. Considering costs, processing times, and annual demand for 4 products, the optimal choice is machine B, purchasing 2 machines to minimize total costs over the 5 year period. When hourly operating costs are considered, machine C is optimal, purchasing 3 machines to minimize total costs while meeting capacity requirements.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    40 views3 pages

    Capacity Problem1

    Uploaded by

    Ahmed Zaman
    The manager must decide between machine A, B, or C to purchase based on costs and production needs. Machine A costs $114,000 with a 7 year life. Machine B costs $80,000 with a 5 year life. Machine C costs $150,000 with a 6 year life. Considering costs, processing times, and annual demand for 4 products, the optimal choice is machine B, purchasing 2 machines to minimize total costs over the 5 year period. When hourly operating costs are considered, machine C is optimal, purchasing 3 machines to minimize total costs while meeting capacity requirements.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 3

    1. A manager must decide which type of machine to buy, A, B, or C.

    Machine costs are as follows:

    Machine Cost Expected life


    A $114,000 7 years
    B $80,000 5 years
    C $150,000 6 years

    Product forecasts and processing times on the machines are as follows:

    PROCESSING TIME
    PER 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

    a. Assume that production costs with all machines are the same. Which machine would have the
    lowest total cost, and how many of those machines would be needed? Machines operate 10
    hours a day, 250 days a year.

    b. Consider the machines differ in terms of hourly operating costs: The A machines have an hourly
    operating cost of $12 each, B machines have an hourly operating cost of $11 each, and C
    machines have an hourly operating cost of $14 each. Which alternative would be selected, and
    how many machines, in order to minimize total cost while satisfying capacity processing
    requirements?

    1. XYZ Company contemplating to start a business of a new product. The company estimated
    that the selling price of the product would be Tk325 per unit. The company also found that
    the annual fixed cost of the business would be 6 million taka and the average variable cost
    for each unit of product sold will be Tk175.
    a) Find the minimum annual sales for which the company can start the business.
    b) If it is found that the company would sell 35000 units per year then calculate the
    annual profit or loss of the company.

    2. Two persons decide to open a business. The annual fixed cost of the business is $63000
    and the average variable cost for each unit of product sold is $3.5. They expect to sell each
    unit at $5 per copy.
    a. Show a graph and calculate what the break-even point in dollars is. In a number of
    copies?
    After their first year in operation in which they generated $400000 in revenues, they decided to
    pay each other $30000 per year in salaries. What do their annual sales have to be in the
    second year if they want to make the same profit as did in their first year?

    2. 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 $8 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
    $60,000 and a variable cost of $5 per unit, and the other would have an annual fixed cost of
    $120,000 and a variable cost of $3 per unit. Determine the range of annual volume for which each of
    the alternatives would be best.

    2. A manager is trying to decide whether to purchase a certain part or to have it produced in


    processes of third party. Third party production could use either of two processes. One
    would entail a variable cost of $17 per unit and an annual fixed cost of $200,000; the other
    would entail a variable cost of $14 per unit and an annual fixed cost of $245,000. A vendors
    is willing to provide the part and has a price of $22 per unit for demand of 5,000 units or
    less, and $18 per unit for additional quantities. If the manager anticipates an annual volume
    of 10,000 units, which alternative would be best from a cost standpoint? For 40,000 units,
    which alternative would be best?

    b. Determine the range for which each alternative is best. Are there any alternatives that are
    never best? Which?
    3. A company manufactures a product using two machine cells. Each cell has a design capacity of 250 units per
    day and an effective capacity of 230 units per day. At present, actual output averages 200 units per cell, but
    the manager estimates that productivity improvements soon will increase output to 225 units per day. Annual
    demand is currently 50,000 units. It is forecasted that within two years, annual demand will triple. How many
    cells should the company plan to produce to satisfy predicted demand under these conditions? Assume 240
    workdays per year.

    You might also like