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8 Pages

### chapter7solutions

Course: MGMT 408, Spring 2012
School: Buena Vista
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Word Count: 821

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7 END-OF-CHAPTER CHAPTER PROBLEMS 7.5 utilization = actual 5,000 = = 0.7143 71% design capacity 7,000 7.6 efficiency = actual 4,500 = = 0.9 or 90% effective capacity 5,000 7.7 actual(planned) output actual(planned) output or 0.80 = . designed capacity 7,000 So, planned output = 5,600 7.8 effective capacity = 7.9 efficiency = 7.10 anticipated output = (Design capacity) (Effective capacity)...

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7 END-OF-CHAPTER CHAPTER PROBLEMS 7.5 utilization = actual 5,000 = = 0.7143 71% design capacity 7,000 7.6 efficiency = actual 4,500 = = 0.9 or 90% effective capacity 5,000 7.7 actual(planned) output actual(planned) output or 0.80 = . designed capacity 7,000 So, planned output = 5,600 7.8 effective capacity = 7.9 efficiency = 7.10 anticipated output = (Design capacity) (Effective capacity) (Efficiency) = 108 0.80 0.90 = 77.76 78 chairs effective capacity = actual(planned) output 800 800 or 0.93 = = 860 . Thus, design = designed capacity design 0.93 actual 500 or 0.80 = . effective capacity effective capacity 500 effective capacity = = 625 0.80 Thus, 7.12 Design: 93,600 0.92 0.95 = 81,806 Fabrication: 156,000 0.95 1.03 = 152,646 Finishing: 62,400 0.96 1.05 = 62,899 7.15 Sales revenue Large line Hi (2/3) (200,000) Lo (1/3) Expand (2/3) Hi Small line Lo Cost for Extra cost process to expand Net profit 600,000 300,000 = 300,000 300,000 300,000 =0 500,000 200,000 150,000 = 150,000 (200,000) Do not expand (100,000) (1/3) 400,000 200,000 = 200,000 300,000 200,000 = 100,000 Prefer to build a large line. Large line has a payoff of \$200,000. Small line has a payoff of \$133,333 + 33,333 = \$166,666 . 7.16 (a) Proposal A breakeven in units is: Chapter 7: Process Strategy and Capacity Planning 1 Fixed cost 50,000 50,000 = = = 6,250 units SP VC 20 12 8 (b) Proposal B breakeven in units is: Fixed cost 70,000 70,000 = = = 7,000 units SP VC 20 10 10 7.17 (a) Proposal A breakeven in dollars is: Fixed cost 50,000 50,000 = = = \$125,000 1 VC 1 12 0.40 SP 20 (b) Proposal B breakeven in dollars is: BEP\$ = Fixed cost 70,000 70,000 = = = \$140,000 1 VC 1 10 0.50 SP 20 7.18 Set Proposal A = to Proposal B (SPA VCA ) X A FA = (SPB VCB ) XB FB (20 12) X 50,000 = (20 10) X 70,000 (8) X 50,000 = (10) X 70,000 (8) X + 20,000 = (10) X 20,000 = 10 X 8 X 20,000 = 2 X 10,000 = X 7.19 (a) Proposal A: Profit at 8,500 units Profit = ( SP VC ) X F @ 8,500 for Proposal A: (20 12)8,500 50,000 = 18,000 @ 8,500 for Proposal B: (20 10 )8,500 70,000 = 15,000 Proposal A is best. @ 15,000 units for Proposal A: (20 12)15,000 50,000 = \$70,000 (b) @ 15,000 units for Proposal B: (20 10)15,000 70,000 = \$80,000 Proposal B is best. 7.20 Given: Price ( P) = \$8 unit Variable cost (V ) = \$4 unit Fixed cost ( F) = \$50,000 (a) Breakeven in units is given by: BEPx = (b) 2 F 50,000 50,000 = = = 12,500 units PV 84 4 Breakeven in dollars is given by: Instructors Solutions Manual t/a Operations Management BEP\$ = (c) F 50,000 50,000 = = = \$100,000 1 V 1 4 1 0.50 P 8 Profit is given by: Profit = Volume Contribution Fixed cost = 100,000 (8 4 ) 50,000 = 400,000 50,000 = \$350,000 7.21 Given: Price ( P) = \$0.05 unit Variable cost (V ) = \$0.01 unit Fixed cost ( F) = \$12,000 Breakeven is given by: BEP\$ = F 12,000 12,000 = = = \$15,000 V 0 01 1 P 1 0..05 1 0.2 BEPx = F 12,000 12,000 = = = 300,000 units P V 0.05 0.01 0.04 7.22 Given: Price ( P) = \$30 unit Variable cost (V ) = \$20 unit Fixed cost ( F ) = \$250,000 Breakeven is given by: BEP\$ = F 250,000 250,000 = = = \$750,000 V 20 1 P 1 30 1 0.67 BEPx = F 250,000 250,000 = = = 25,000 units P V 30 20 10 7.23 Given: Price ( P) = \$30 unit Variable cost (V ) = \$20 unit Fixed cost ( F) = \$250,000 + \$50,000 = \$300,000 Breakeven is given by: F 300,000 300,000 BEPx = = = = 30,000 units (a) P V 30 20 10 F 300,000 300,000 BEP\$ = = = = \$900,000 (b) V 20 1 P 1 30 1 0.67 7.24 Option A: Stay as is Option B: Add new equipment Chapter 7: Process Strategy and Capacity Planning 3 Units ( Price VC ) FC = Profit Profit A = 30000 (1.00 0.50 ) 14000 = \$1,000 Profit B = 50000 (1.00 0.60 ) 20000 = \$0 Therefore, the company should stay with the present equipment. 7.25 Option A: Stay as is Option B: Add new equipment, raise selling price Units ( Price VC ) FC = Profit Profit A = 30000 (1.00 0.50 ) 14000 = \$1,000 Profit B = 45000 (1.10 0.60 ) 20000 = \$2,500 Therefore, the company should choose option B: add the new equipment and raise the selling price. 7.26 0 3 Units 0 10,000 6 Qty Mehras 15,000 33,200 9 Memphis Supply 0 40,000 at approximately 7,000 gears 4 x = 15,000 + 1.82 x x = 6,881 7.27 (A) (B) (C) 4 Units y = 600 + 1.10 = x y 1100 + 0.70 x y = 1800 + 0.4 x 0 600 1100 1800 4000 (arbitrary number) \$5000 refurbish \$3900 modify \$3400 new Instructors Solutions Manual t/a Operations Management (a) A \$5,000 4,000 B 3,000 C 2,000 1,000 0 0 (b) (c) 1,000 2,000 Units 3,000 4,000 At 3,000, C is best. Between 1600 and 2400, B is best. 7.31 Initial investment = \$123,545 Salvage value: \$44,560 Five-year return = \$14,667 Cost of capital = 12% NPV annuity factor 5 years @ 12% = 3.605 3.61 Present value = 3.61 14667 = 52948 Present value of salvage: 0.567 44560 = 25266 Net present value = 52948 + 25266 123545 = \$45,331 7.32 Initial investment = \$65,000 Eight-year return = \$16,000 per year Cost of capital = 10% NPV annuity factor 8 years @ 10% = 5.33 Present value = 5.33 \$16000 = \$85,280 Net present value = \$85,280 \$65,000 = \$20,280 7.33 P= F 1000 1000 = = = \$841.68 N 2 (1 + i ) (1 + 0.09 ) 1.1881 or from Table 7.4 NPV = F PVF9%, 2 = 1000 0.842 = \$842 7.34 P= F (1 + i ) N = 5600 (1.08)15 = 5600 = \$1,765.35 3.17 or from Table 7.4 NPV = F PVF8%, 15 = 5600 0.315 = \$1,764 Chapter 7: Process Strategy and Capacity Planning 5 7.35 Expense Original cost Labor per year Maintenance per year Salvage value Year Now 1 2 3 3 Machine A 10000 2000 4000 2000 Machine A Machine B 20000 4000 1000 7000 10000 6000 6000 6000 Expense Expense Expense Expense Salvage revenue NPV Factor* 1.000 0.893 0.797 0.712 2000 0.712 NPV 10000 5358 4782 4272 24412 + 1424 22988 * NPV factor from Table 7.4 Machine B Year Now 1 2 3 3 Expense Expense Expense Expense NPV Factor * NPV 1.000 20000 0.893 4465 0.797 3985 0.712 3560 32010 7000 0.712 + 4984 27026 20000 5000 5000 5000 Salvage revenue * NPV factor from Table 7.4 NPV for machine A is \$22,988; NPV for machine B is \$27,026. Therefore, Machine A should be recommended. 7.36 Expense Original cost Excess labor per year Maintenance per year Salvage value Year Now 1 2 3 4 5 5 Expense Expense Expense Expense Expense Expense Three Small Ovens Two Large Ovens 3750 5000 750 0 750 400 750 1000 Three Small Ovens NPV Factor* 3750 1.000 1500 0.877 1500 0.769 1500 0.675 1500 0.592 1500 0.519 Salvage revenue 750 0.519 NPV 3750 1316 1154 1013 888 779 8900 + 389 8511 * NPV factor from Table 7.4 6 Instructors Solutions Manual t/a Operations Management Year Now 1 2 3 4 5 5 Expense Expense Expense Expense Expense Expense Two Large Ovens NPV Factor * 5000 1.000 400 0.877 400 0.769 400 0.675 400 0.592 400 0.519 Salvage revenue 1000 0.519 NPV 5000 351 308 270 237 208 6374 + 519 5855 * NPV factor from Table 7.4 Chapter 7: Process Strategy and Capacity Planning 7 (a) (b) (c) NPV of the three small ovens = \$8,511; NPV of the two large ovens = \$5,855. Therefore, you should recommend that the firm purchase the two large ovens. The basic assumptions made with regard to the ovens are: n The ovens are of equal quality n The ovens are of equivalent production capacity The basic assumptions made with regard to methodology are: n Future interest rates are known n Payments are made at the end of each time period 7.37 Investment A net income, using Table 7.5 19000 PVF9%, 6 61000 = 19000 4.486 61000 = \$24,234 Investment B Net Income NPV Factor* Expense 74,000 1.000 Revenue 19,000 0.917 Revenue 20,000 0.842 Revenue 21,000 0.772 Revenue 22,000 0.708 Revenue 21,000 0.650 Revenue 20,000 0.596 Revenue 11,000 0.547 Year Now 1 2 3 4 5 6 7 NPV 74,000 + 17,423 + 16,840 + 16,212 + 15,576 + 13,650 + 11,920 + 6,017 23,638 * From Table 7.4 Therefore, Investment A, with a payoff of \$24,234, would be preferred over Investment B, with a payoff of \$23,638. 7.38 Initial investment = \$ 20,000 NPV Year 1 2 3 4 5 6 7 8 9 Factor 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 Cash Flow 1 \$1,000 1,000 3,000 15,000 3,000 1,000 1,000 Cash Flows Cash Flow 2 P P \$ 909 \$ 7,000 \$ 6,363 826 6,000 4,956 2,253 5,000 3,755 10,245 4,000 2,732 1,863 4,000 2,484 564 4,000 2,256 4,000 2,052 467 2,000 934 \$17,127 \$25,532 Cash Flow 3 \$ 10,000 5,000 3,000 2,000 1,000 1,000 1,000 1,000 P \$ 9,090 4,130 2,253 1,366 621 564 513 425 \$18,962 The NPV from investment 2 is highest, at \$5,532 (after initial investment of \$20,000 is subtracted). 8 Instructors Solutions Manual t/a Operations Management
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