1. Mary Williams, owner of Williams Products, is evalu- ating whether to introduce a new product line. After thinking through the production process and the costs of raw materials and new equipment, Williams estimates the variable costs of each unit produced and sold at $6 and the fixed costs per year at $60,000. a. If the selling price is set at $18 each, how many units must be produced and sold for Williams to break even? Use both graphic and algebraic approaches to get your answer. b. Williams forecasts sales of 10,000 units for the first year if the selling price is set at $14 each. What would be the total contribution to profits from this new product during the first year? c. If the selling price is set at $12.50, Williams forecasts that first-year sales would increase to 15,000 units. Which pricing strategy ($14.00 or $12.50) would result in the greater total contribution to profits? d. What other considerations would be crucial to the final decision about making and marketing the new product?
1. Mary Williams, owner of Williams Products, is evalu- ating whether to introduce a new product line. After thinking through the production process and the costs of raw materials and new equipment, Williams estimates the variable costs of each unit produced and sold at $6 and the fixed costs per year at $60,000. a. If the selling price is set at $18 each, how many units must be produced and sold for Williams to break even? Use both graphic and algebraic approaches to get your answer. b. Williams forecasts sales of 10,000 units for the first year if the selling price is set at $14 each. What would be the total contribution to profits from this new product during the first year? c. If the selling price is set at $12.50, Williams forecasts that first-year sales would increase to 15,000 units. Which pricing strategy ($14.00 or $12.50) would result in the greater total contribution to profits? d. What other considerations would be crucial to the final decision about making and marketing the new product?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
Related questions
Question
I want to know these problem's solutions. (No.1-13)
I attached images of problems.
Thank you.
Transcribed Image Text:15:58
ull
1検索
AA E
$441
Problems
The OM Explorer and POM for Windows software is avail-
able to all students using the 12th edition of this textbook. Go
to http://www.pearsonhighered.com/krajewski to download
these computer packages. If you purchased MyLab Operations
Management, you also have access to Active Models software
and significant help in doing the following problems. Check
with your instructor on how best to use these resources. In
many cases, the instructor wants you to understand how to do
the calculations by hand. At the least, the software provides a
check on your calculations. When calculations are particularly
complex and the goal is interpreting the results in making deci-
sions, the software entirely replaces the manual calculations.
DECISION MAKING
SUPPLEMENT A
45
Break-Even Analysis
1. Mary Williams, owner of Williams Products, is evalu-
ating whether to introduce a new product line. After
thinking through the production process and the costs of
raw materials and new equipment, Williams estimates
the variable costs of each unit produced and sold at $6
and the fixed costs per year at $60,000.
into the atmosphere. Two processes have been identi-
fied that provide the same level of particulate reduc-
tion. The first process is expected to incur $350,000 of
fixed cost and add $50 of variable cost to each casting
Spartan produces. The second process has fixed costs of
$150,000 and adds $90 of variable cost per casting.
a. If the selling price is set at $18 each, how many units
must be produced and sold for Williams to break
even? Use both graphic and algebraic approaches to
get your answer.
a. What is the break-even quantity beyond which the
first process is more attractive?
b. What is the difference in total cost if the quantity
produced is 10,000?
6. A news clipping service is considering moderniza-
tion. Rather than manually clipping and photocopy-
ing articles of interest and mailing them to its clients,
employees electronically input stories from most widely
circulated publications into a database. Each new issue
is searched for key words, such as a client's company
name, competitors' names, type of business, and the
company's products, services, and officers. When
matches occur, affected clients are instantly notified
via an online network. If the story is of interest, it is
electronically transmitted, so the client often has the
story and can prepare comments for follow-up inter-
views before the publication hits the street. The manual
process has fixed costs of $400,000 per year and variable
costs of $6.20 per clipping mailed. The price charged the
client is $8.00 per clipping. The computerized process
has fixed costs of $1,300,000 per year and variable costs
of $2.25 per story electronically transmitted to the client.
b. Williams forecasts sales of 10,000 units for the first
year if the selling price is set at $14 each. What
would be the total contribution to profits from this
new product during the first year?
c. If the selling price is set at $12.50, Williams forecasts
that first-year sales would increase to 15,000 units.
Which pricing strategy ($14.00 or $12.50) would
result in the greater total contribution to profits?
d. What other considerations would be crucial to the final
decision about making and marketing the new product?
2. A product at the Jennings Company enjoyed reasonable
sales volumes, but its contributions to profits were dis-
appointing. Last year, 17,500 units were produced and
sold. The selling price is $22 per unit, the variable cost
is $18 per unit, and the fixed cost is $80,000.
a. What is the break-even quantity for this product? Use
both graphic and algebraic approaches to get your answer.
b. If sales were not expected to increase, by how much
would Jennings have to reduce their variable cost to
break even?
a. If the same price is charged for either process, what
is the annual volume beyond which the automated
process is more attractive?
c. Jennings believes that a $1 reduction in price will
increase sales by 50 percent. Is this enough for
Jennings to break even? If not, by how much would
sales have to increase?
b. The present volume of business is 225,000
per year. Many of the clippings sent with the current
process are not of interest to the client or are mul-
tiple copies of the same story appearing in several
publications. The news clipping service believes that
by improving service and by lowering the price to
$4.00 per story, modernization will increase volume
to 900,000 stories transmitted per year. Should the
clipping service modernize?
c. If the forecasted increase in business is too optimistic,
at what volume will the new process (with the $4.00
price) break even?
7. Hahn Manufacturing purchases a key component of one
of its products from a local supplier. The current purchase
price is $1,500 per unit. Efforts to standardize parts suc-
ceeded to the point that this same component can now be
used in five different products. Annual component usage
should increase from 150 to 750 units. Management won-
ders whether it is time to make the component in-house
rather than to continue buying it from the supplier. Fixed
costs would increase by about $40,000 per year for the
new equipment and tooling needed. The cost of raw mate-
rials and variable overhead would be about $1,100 per
unit, and labor costs would be $300 per unit produced.
ippings
d. Jennings is considering ways to either stimulate sales
volume or decrease variable cost. Management believes
that either sales can be increased by 30 percent or that
variable cost can be reduced to 85 percent of its cur-
rent level. Which alternative leads to higher contribu-
tions to profits, assuming that each is equally costly to
implement? (Hint: Calculate profits for both alterna-
tives and identify the one having the greatest profits.)
e. What is the percent change in the per-unit profit
contribution generated by each alternative in part (d)?
3. An interactive television service that costs $10 per
month to provide can be sold on the information
highway for $15 per client per month. If a service area
includes a potential of 15,000 customers, what is the
most a company could spend on annual fixed costs to
acquire and maintain the equipment?
4. A restaurant is considering adding fresh brook trout to its
menu. Customers would have the choice of catching their
own trout from a simulated mountain stream or simply
asking the waiter to net the trout for them. Operating the
stream would require $10,600 in fixed costs per year.
Variable costs are estimated to be $6.70 per trout. The
firm wants to break even if 800 trout dinners are sold per
year. What should be the price of the new item?
a. Should Hahn make rather than buy?
b. What is the break-even quantity?
c. What other considerations might be important?
8. Techno Corporation is currently manufacturing an
item at variable costs of $5 per unit. Annual fixed costs
of manufacturing this item are $140,000. The current
5. Spartan Castings must implement a manufacturing
process that reduces the amount of particulates emitted
46
SUPPLEMENT A
DECISION MAKING
45 / 664
![15:58
ull
1検索
AA E
46
SUPPLEMENT A
DECISION MAKING
selling price of the item is $10 per unit, and the annual
sales volume is 30,000 units.
year's budgeting process. That forecast calls for
Tri-County customers to consume 1 million MWh of
energy next year.
a. Techno can substantially improve the item's quality by
installing new equipment at additional annual fixed
costs of $60,000. Variable costs per unit would increase
by $1, but, as more of the better-quality product could
be sold, the annual volume would increase to 50,000
units. Should Techno buy the new equipment and
maintain the current price of the item? Why or why not?
a. How much will Tri-County need to charge its
customers per MWh to break even next year?
b. The Tri-County customers balk at that price and
conserve electrical energy. Only 95 percent of fore-
casted demand materializes. What is the resulting
surplus or loss for this nonprofit organization?
b. Alternatively, Techno could increase the selling price
to $11 per unit. However, the annual sales volume
would be limited to 45,000 units. Should Techno buy
the new equipment and raise the price of the item?
Why or why not?
10. Earthquake, drought, fire, economic famine, flood, and a
pestilence of TV court reporters have caused an exodus
from the City of Angels to Boulder, Colorado. The sud-
den increase in demand is straining the capacity of Boul-
der's electrical system. Boulder's alternatives have been
reduced to buying 150,000 MWh of electric power from
Tri-County G&T at a price of $75 per MWh, or refurbish-
ing and recommissioning the abandoned Pearl Street
Power Station in downtown Boulder. Fixed costs of
that project are $10 million per year, and variable costs
would be $35 per MWh. Should Boulder build or buy?
9. The Tri-County Generation and Transmission Associa-
tion is a nonprofit cooperative organization that pro-
vides electrical service to rural customers. Based on a
faulty long-range demand forecast, Tri-County overbuilt
its generation and distribution system. Tri-County now
has much more capacity than it needs to serve its cus-
tomers. Fixed costs, mostly debt service on investment
in plant and equipment, are $82.5 million per year.
Variable costs, mostly fossil fuel costs, are $25 per
megawatt-hour (MWh, or million watts of power used
for 1 hour). The new person in charge of demand fore-
casting prepared a short-range forecast for use in next
11. Tri-County G&T sells 150,000 MWh per year of electrical
power to Boulder at $75 per MWh, has fixed costs of
$82.5 million per year, and has variable costs of $25 per
MWh. If Tri-County has 1,000,000 MWh of demand from
its customers (other than Boulder), what will Tri-County
have to charge to break even?
Preference Matrix
12. The Forsite Company is screening three ideas for new
services. Resource constraints allow only one idea to be
commercialized at the present time. The following esti-
mates have been made for the five performance criteria
that management believes to be most important:
criterion 2. No more than two new suppliers are required
but each new vendor must exceed a total score of 70 per-
cent of the maximum total points to be considered.
RATING
Performance
Vendor Vendor Vendor Vendor Vendor
RATING
Criterion
A
B
C
E
Performance Criterion
Service A
Service B
Service C
Quality of raw material
8
7
3
9.
Capital equipment
investment required
0.6
0.8
0.3
Environmental impact
3
8
4
7
7
Responsiveness to
order changes
9.
7
6
5
Expected return on
investment (ROI)
0.7
0.3
0.9
Cost of raw material
7
6
9
2
7
Compatibility with current
0.4
0.7
0.5
workforce skills
a. Which new vendors do you recommend?
Competitive advantage
1.0
0.4
0.6
b. Would your decision change if the criteria were con-
sidered equally important?
Compatibility with EPA
requirements
0.2
1.0
0.5
14. Accel Express, Inc. collected the following information
on where to locate a warehouse (1 =poor, 10=excellent):
a. Calculate a total weighted score for each alternative. Use
a preference matrix and assume equal weights for each
performance criterion. Which alternative is best? Worst?
LOCATION SCORE
Location Factor
Factor Weight
A
B
b. Suppose that the expected ROI is given twice the
weight assigned to each of the remaining criteria.
(The sum of weights should remain the same as in
part [a].) Does this modification affect the ranking of
the three potential services?
Construction costs
10
8
Utilities available
10
7
7
Business services
10
4
7
13. You are in charge of analyzing five new suppliers of an
important raw material and have been given the informa-
tion shown in the table (1=worst, 10= best). Management
has decided that criteria 2 and 3 are equally important and
that criteria 1 and 4 are each four times as important as
Real estate cost
20
7
4
Quality of life
20
4
8
Transportation
30
7
6
DECISION MAKING
SUPPLEMENT A
47
a. Which location, A or B, should be chosen on the
basis of the total weighted score?
RATING
Factor
Software Software Software
b. If the factors were weighted equally, would the
choice change?
Performance Criterion
Weight
A
B
Compatibility with current
systems
6
8
6
15. Janice Gould of Krebs Consulting is in the process of
making a recommendation to a client regarding the cor-
porate-wide purchase of an analytical software platform.
She has made the following estimates on management's
most important performance criteria and has rated three
Software packages across these criteria
Maintenance and support
10
5
8
Total cost
25
4
8
46 / 664
20](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0f85a464-1153-4eb8-981d-6db58f0704c9%2Fb081eb57-4583-4d81-a81d-2b999c835941%2F7y1uson_processed.png&w=3840&q=75)
Transcribed Image Text:15:58
ull
1検索
AA E
46
SUPPLEMENT A
DECISION MAKING
selling price of the item is $10 per unit, and the annual
sales volume is 30,000 units.
year's budgeting process. That forecast calls for
Tri-County customers to consume 1 million MWh of
energy next year.
a. Techno can substantially improve the item's quality by
installing new equipment at additional annual fixed
costs of $60,000. Variable costs per unit would increase
by $1, but, as more of the better-quality product could
be sold, the annual volume would increase to 50,000
units. Should Techno buy the new equipment and
maintain the current price of the item? Why or why not?
a. How much will Tri-County need to charge its
customers per MWh to break even next year?
b. The Tri-County customers balk at that price and
conserve electrical energy. Only 95 percent of fore-
casted demand materializes. What is the resulting
surplus or loss for this nonprofit organization?
b. Alternatively, Techno could increase the selling price
to $11 per unit. However, the annual sales volume
would be limited to 45,000 units. Should Techno buy
the new equipment and raise the price of the item?
Why or why not?
10. Earthquake, drought, fire, economic famine, flood, and a
pestilence of TV court reporters have caused an exodus
from the City of Angels to Boulder, Colorado. The sud-
den increase in demand is straining the capacity of Boul-
der's electrical system. Boulder's alternatives have been
reduced to buying 150,000 MWh of electric power from
Tri-County G&T at a price of $75 per MWh, or refurbish-
ing and recommissioning the abandoned Pearl Street
Power Station in downtown Boulder. Fixed costs of
that project are $10 million per year, and variable costs
would be $35 per MWh. Should Boulder build or buy?
9. The Tri-County Generation and Transmission Associa-
tion is a nonprofit cooperative organization that pro-
vides electrical service to rural customers. Based on a
faulty long-range demand forecast, Tri-County overbuilt
its generation and distribution system. Tri-County now
has much more capacity than it needs to serve its cus-
tomers. Fixed costs, mostly debt service on investment
in plant and equipment, are $82.5 million per year.
Variable costs, mostly fossil fuel costs, are $25 per
megawatt-hour (MWh, or million watts of power used
for 1 hour). The new person in charge of demand fore-
casting prepared a short-range forecast for use in next
11. Tri-County G&T sells 150,000 MWh per year of electrical
power to Boulder at $75 per MWh, has fixed costs of
$82.5 million per year, and has variable costs of $25 per
MWh. If Tri-County has 1,000,000 MWh of demand from
its customers (other than Boulder), what will Tri-County
have to charge to break even?
Preference Matrix
12. The Forsite Company is screening three ideas for new
services. Resource constraints allow only one idea to be
commercialized at the present time. The following esti-
mates have been made for the five performance criteria
that management believes to be most important:
criterion 2. No more than two new suppliers are required
but each new vendor must exceed a total score of 70 per-
cent of the maximum total points to be considered.
RATING
Performance
Vendor Vendor Vendor Vendor Vendor
RATING
Criterion
A
B
C
E
Performance Criterion
Service A
Service B
Service C
Quality of raw material
8
7
3
9.
Capital equipment
investment required
0.6
0.8
0.3
Environmental impact
3
8
4
7
7
Responsiveness to
order changes
9.
7
6
5
Expected return on
investment (ROI)
0.7
0.3
0.9
Cost of raw material
7
6
9
2
7
Compatibility with current
0.4
0.7
0.5
workforce skills
a. Which new vendors do you recommend?
Competitive advantage
1.0
0.4
0.6
b. Would your decision change if the criteria were con-
sidered equally important?
Compatibility with EPA
requirements
0.2
1.0
0.5
14. Accel Express, Inc. collected the following information
on where to locate a warehouse (1 =poor, 10=excellent):
a. Calculate a total weighted score for each alternative. Use
a preference matrix and assume equal weights for each
performance criterion. Which alternative is best? Worst?
LOCATION SCORE
Location Factor
Factor Weight
A
B
b. Suppose that the expected ROI is given twice the
weight assigned to each of the remaining criteria.
(The sum of weights should remain the same as in
part [a].) Does this modification affect the ranking of
the three potential services?
Construction costs
10
8
Utilities available
10
7
7
Business services
10
4
7
13. You are in charge of analyzing five new suppliers of an
important raw material and have been given the informa-
tion shown in the table (1=worst, 10= best). Management
has decided that criteria 2 and 3 are equally important and
that criteria 1 and 4 are each four times as important as
Real estate cost
20
7
4
Quality of life
20
4
8
Transportation
30
7
6
DECISION MAKING
SUPPLEMENT A
47
a. Which location, A or B, should be chosen on the
basis of the total weighted score?
RATING
Factor
Software Software Software
b. If the factors were weighted equally, would the
choice change?
Performance Criterion
Weight
A
B
Compatibility with current
systems
6
8
6
15. Janice Gould of Krebs Consulting is in the process of
making a recommendation to a client regarding the cor-
porate-wide purchase of an analytical software platform.
She has made the following estimates on management's
most important performance criteria and has rated three
Software packages across these criteria
Maintenance and support
10
5
8
Total cost
25
4
8
46 / 664
20
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 6 images
Recommended textbooks for you
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.