Answered: Process 1 Process 2 Production rate 35…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A bicycle component manufacturer produces hubs for bike wheels. Two processes are possible for manufacturing, and the parameters of each process are as follows: Assume that the daily demand for hubs allows all defect-free hubs to be sold. Additionally, tested or rejected hubs cannot be sold. Find the process that maximizes profit per day if each part is made from $4 worth of material and can be sold for $30. Both processes are fully automated, and variable overhead cost is charged at the rate of $40 per hour

Process 1
Process 2
Production rate
35 parts/hour 15 parts/hour
7 hours/day
Daily production time 4 hours/day
Percent of parts
rejected based on
visual inspection
20%
9%

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