During your first month as an employee at Greenfield Industries (a large drill-bit manufacturer), you are asked to evaluate alternatives for producing a newly designed drill bit on a turning machine. Your boss’ memorandum to you has practically no information about what the alternatives are and what criteria should be used. The same task was posed to a previous employee who could not finish the analysis, but she has given you the following information: An old turning machine valued at $350,000 exists (in the warehouse) that can be modified for the new drill bit. The in-house technicians have given an estimate of $40,000 to modify this machine, and they assure you that they will have the machine ready before the projected start date (although they have never done any modifications of this type). It is hoped that the old turning machine will be able to meet production requirements at full capacity. An outside company, McDonald Inc., made the machine seven years ago and can easily do the same modifications for $60,000. The cooling system used for this machine is not environmentally safe and would require some disposal costs. McDonald Inc. has offered to build a new turning machine with more environmental safeguards and higher capacity for a price of $450,000. McDonald Inc. has promised this machine before the startup date and is willing to pay any late costs. Your company has $100,000 set aside for the start-up of the new product line of drill bits. For this situation, a. Define the problem. b. List key assumptions. c. List alternatives facing Greenfield Industries. d. Select a criterion for evaluation of alternatives e. Introduce risk into this situation. f. Discuss how nonmonetary considerations may impact the selection. g. Describe how a postaudit could be performed.
During your first month as an employee at
Greenfield Industries (a large drill-bit manufacturer),
you are asked to evaluate alternatives for
producing a newly designed drill bit on a turning
machine. Your boss’ memorandum to you has
practically no information about what the alternatives
are and what criteria should be used. The same task
was posed to a previous employee who could not
finish the analysis, but she has given you the following
information:
An old turning machine valued at $350,000
exists (in the warehouse) that can be modified for the
new drill bit. The in-house technicians have given
an estimate of $40,000 to modify this machine, and
they assure you that they will have the machine ready
before the projected start date (although they have
never done any modifications of this type). It is hoped
that the old turning machine will be able to meet
production requirements at full capacity. An outside
company, McDonald Inc., made the machine seven
years ago and can easily do the same modifications
for $60,000. The cooling system used for this machine
is not environmentally safe and would require some
disposal costs. McDonald Inc. has offered to build a new
turning machine with more environmental safeguards
and higher capacity for a price of $450,000. McDonald
Inc. has promised this machine before the startup date
and is willing to pay any late costs. Your company has
$100,000 set aside for the start-up of the new product
line of drill bits. For this situation,
a. Define the problem.
b. List key assumptions.
c. List alternatives facing Greenfield Industries.
d. Select a criterion for evaluation of alternatives
e. Introduce risk into this situation.
f. Discuss how nonmonetary considerations may
impact the selection.
g. Describe how a postaudit could be performed.
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