Answered: 46. Ford is going to produce a new…

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...

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46. Ford is going to produce a new vehicle, the Pioneer,
and wants to determine the amount of annual capacity
it should build. Ford’s goal is to maximize the profit
from this vehicle over the next five years. Each vehicle will sell for $19,000 and incur a variable production cost of $16,000. Building one unit of annual capacity will cost $2000. Each unit of capacity will also
cost $1000 per year to maintain, even if the capacity
is unused. Demand for the Pioneer is unknown but
marketing estimates the distribution of annual demand
to be as shown in the file P09_46.xlsx. Assume that
the number of units sold during a year is the minimum
of capacity and annual demand. Which capacity level
should Ford choose? Do you think EMV is the appropriate criterion?

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