Ch07 Practice Problems (1)

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San Diego State University *

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360

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Business

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Jun 23, 2024

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BA 360 Operations Management – Practice Problems Chapter 7: Process Strategy Problem #7-1: A firm is evaluating the alternative of manufacturing a part that is currently being outsourced from a supplier. The relevant information is provided below: For in-house manufacturing Annual fixed cost = $45,000 Variable cost per part = $130 For purchasing from supplier Purchase price per part = $160 Using this information, determine the break-even quantity for which the firm would be indifferent between manufacturing the part in-house or outsourcing it. Problem #7-2: The marketing department forecasts that the upcoming year’s demand will be 1,200 units. A new supplier offers to make the parts for $140 each. Should the company accept the offer? For in-house manufacturing Annual fixed cost = $45,000 Variable cost per part = $130 For purchasing from supplier Purchase price per part = $140 What is the maximum price per part the manufacturer should be willing to pay to the supplier if the forecast is 800 parts? Problem #7-3: What is the implied service rate at a bank teller’s window if demand is 26 customers per hour and the bank staffs 3 tellers with an average utilization of 80%? Problem #7-4: What is the utilization at a bank teller’s window if demand is 35 customers per hour and the bank staffs 3 tellers with an average service rate of 1 customer every 5 minutes? Problem #7-5: UCSD Medical Center is deciding between which lab analyzer to buy for the chemistry department in the centralized core laboratory. The vendors have provided numerous equipment options with varying up front capital costs. The larger, more powerful, analyzers will have higher fixed costs but require less manual labor (variable costs) as the volume of patient samples is increased. See the proposals noted below. If UCSD plans to have a volume of 7,000 patient samples processed in the laboratory, which equipment should they purchase (if any)? Page 1

BA 360 Operations Management – Practice Problems Chapter 7: Process Strategy Equipment option Total Fixed Cost Labor Cost Per Unit No equipment, all labor $0 $140 Equipment A $200,000 $100 Equipment B $400,000 $75 Equipment C $600,000 $60 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Solution #7-1: Q* = ____ FC 2 – FC 1 _______ = $45,000 – 0 = 1,500 parts VC 1 – VC 2 $160 – $130 If demand is forecast to be greater than 1,500 parts, should they make the part in-house. Solution #7-2: Q* = ______ FC 2 – FC 1 _ ___ = $45,000 - 0 = 4,500 parts VC 1 – VC 2 $140 – $130 Whenever the anticipated demand (volume) is less than Q*, the firm should outsource (purchase) the part. What is the maximum price per part the manufacturer should be willing to pay to the supplier if the forecast is 800 parts? Q( VC 1 – VC 2 ) = FC 2 – FC 1 or 800( VC 1 – $130) = $45,000 - 0 800 VC 1 – $104,000 = $45,000 800 VC 1 = $149,000 VC 1 = $186.25 Solution #7-3: Utilization ( U ) = Demand Rate/[Service Rate x Number of Servers] 0.80 = 26/[SR*3] SR = 10.83 customers per hour Solution #7-4: Utilization ( U ) = Demand Rate/[Service Rate x Number of Servers] Page 2

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