chapter_8a_processes

# chapter_8a_processes - CHAPTER 8 Process Selection: Volume...

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1 CHAPTER 8 Process Selection: Volume Drives Costs and Profits Process Selection affects the outcome – in production or sports:

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2 What is Process Selection? Series of decisions that includes technical/engineering issues and volume/scale issues Technical/engineering: basic methods that produce a good or service Scale: how many or how much to produce; how many to serve at a time Trade off analysis between capacity and costs
3 Why process selection is critical Dell – from make/assemble to order in Texas to make/assemble to stock off shore Does this work? Break even analysis may depend on process costs Which process gives the lowest costs – assumption?

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Break Even Analysis Total Costs = Total Revenues (Volume x Price) = (Fixed Costs + Variable Costs) Profit = (Total Revenue – Total Costs) B/E PT = Fixed Costs/Sales-Variable Costs
Example Fixed Costs = \$25000 Variable Costs = \$8/item Sales Price = \$15/item Fixed Costs Sales Price – Variable Costs B/E PT = B/E point = 3571.43 items Round up to 3572 items

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The Point of Indifference Comparing Two Processes What is it? Who cares? How do you calculate it? 6
Comparing Two Processes Process A Fixed = \$2000 Variable = \$5/item Process B Fixed = \$11000 Variable = \$2/item

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Fixed A + (Var A )x = Fixed B + (Var B )x 2000 + 5x = 11,000 + 2x 3x = 9000 X = 3000 So what? Comparing the Processes
9 Trade off analysis Customer demanded quantity drives the trade off analysis and decision process Example: → retail stocks at Christmas 2008 and 2009 season - goal save money by stocking less → At what point do you lose sales due to lower stockage levels?

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10 Process Design/Selection/Capacity Have to be simultaneous operations – some texts suggest sequential steps Decision process has to be customer based → what should it be? → how many should be produced/how many are we capable of producing? → how should it be produced?
11 Product Design, Process Selection, and Capacity Decisions

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12 Process Strategy - Defines Capital intensity Process flexibility Vertical integration Customer involvement
Goal of Process Design Reduce lead time for product to the customer Is it best to be the first to market and establish the market?

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## This note was uploaded on 11/22/2010 for the course ACCT 320 taught by Professor Alee during the Spring '10 term at Kansas State University.

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chapter_8a_processes - CHAPTER 8 Process Selection: Volume...

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