ie150+probset#1 - IE150ProblemSet#1...

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IE 150 Problem Set #1 due on Wed, July 15, class hours 1. An agency that helps rehabilitate mentally ill patients has a $1,200,000 lump‐sum annual budget appropriation. On top of this, the agency charges each patient $600 a month for board and care. All of the appropriation and revenue must be spent. The variable cost for rehabilitation activities average $700 per patient per month. The agency’s fixed costs are $800,000. a. How many patients can be served by the agency? b. Suppose the manager of the agency is concerned that the total budget for the coming year will be cut by 10%. All other things remain unchanged. How will this affect the service level? c. If the manager does not reduce the number f patients despite the budget cutoff of 10%, all other things remain unchanged, how much more does he have to charge patients for board and care? 2. Assume a firm has prepared the following cost estimates for the manufacture of a subassembly component based on an annual production of 8000 units: A supplier has offered the subassembly at a price of $16 each. Two‐thirds of fixed factory overhead, which represents executive salaries, rent, depreciation, and taxes, continue regardless of the decision. Should the company buy or make the product?
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