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Homework 2

# Homework 2 - BUS 370 FA11 Homework#2 Due Chapter 8 Use the...

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BUS 370 FA11 - Homework #2 – Due 10/25/11 Chapter 8 Use the following information for questions 8.1 – 8.3 You want to rival Michael Dell and make billions of dollars manufacturing personal computers. You research the cost of buying equipment to assemble computers and find that there are two options. Option 1 is more automated so it costs more up front, but it takes less time (labor hours) to assemble each computer, resulting in a lower variable cost. Option 2 costs less up front, but takes more time to assemble each computer, resulting in a higher variable cost. The basic information is below: Fixed Cost Variable Cost (per Unit) Option 1 \$5,000,000 \$300 Option 2 \$2,000,000 \$600 8.1.a What would the cost of Option 1 be if you sold 8,000 computers? a. \$7,200,000 b. \$7,400,000 c. \$6,800,000 d. \$7,000,000 8.1.b. What would the cost of Option 2 be if you sold 8,000 computers? a. \$7,200,000 b. \$7,400,000 c. \$6,800,000 d. \$7,000,000 8.1.c. Which option would you choose? a. Option 1 b. Option 2 8.2.a. What is the cost of Option 1 if you sold 12,000 computers? a. \$8,200,000 b. \$9,200,000 c. \$8,600,000 d. \$9,100,000

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8.2.b. What is the cost of Option 2 if you sold 12,000 computers? a. \$8,200,000 b. \$9,200,000 c. \$8,600,000 d. \$9,100,000 8.2.c. Which option would you choose? a. Option 1 b. Option 2 8.3.a. What is the indifference point (determine the number of computers where the cost of the two Options is equal)? a. 11,000 b. 12,500 c. 10,000 d. 7,000 8.4. You are really not sure of how many computers you can sell, so you decide to assign some probabilities to the demand. You predict the following: Computer Sales Probability 7,000 25% 9,000 60% 12,000 15% Based on this prediction, draw the decision tree for Options 1 and 2. Make sure to draw and calculate each of the branches on the decision tree (i.e. cost of Option 1 for 7,000, 9,000 and 12,000; cost of Option 2 for 7,000, 9,000 and 12,000). Also calculate the expected value (demand outcome) of the two branches. Based on the expected value, would you choose Option 1 or Option 2?
8.4.a What is the Expected Value Option 1: a. \$7.1M b. \$7.685M c. \$7.37M d. \$8.325M 8.4.b What is the Expected Value Option 2: a. \$7.1M b. \$7.685M c. \$7.37M d. \$8.325M 8.4.c Which option would your choose? a. Option 1 b. Option 2 8.5.a For Option 1, if you could sell each computer for \$700, what is your breakeven point? a. 25,000 b. 45,000 c. 12,500 d. 20,000

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8.5.b For Option 2, if you could sell each computer for \$700, what is your breakeven point? a. 25,000 b. 45,000 c. 12,500 d. 20,000 8. 6. You are running a JiffieLube oil change center. On average, the center can service 15 customers per hour and 12 customers arrive every hour. 8.6.a What is the average utilization?
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Homework 2 - BUS 370 FA11 Homework#2 Due Chapter 8 Use the...

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