MyLab Operations Management with Pearson eText -- Access Card -- for Operations Management: Processes and Supply Chains
12th Edition
ISBN: 9780134742366
Author: Lee J. Krajewski, Manoj K. Malhotra, Larry P. Ritzman
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 4, Problem 21P
A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is 6 months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.30 and that of high demand to be 0.70. The after tax
If one machine is purchased and demand is low, the NPV is $120,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $120,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $130,000.
- Draw a decision tree for this problem.
- What is the best decision and what is its expected payoff?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A scrap value of $ 1300 at the end of the 6th year of an agricultural machine purchased for $ 8000 It is expected to be sold. The operating costs of the machine are 1700 dollars in the first year and in other years. It is estimated that it will increase by 11% each year. At an annual interest rate of 8% Find the equivalent present value of the machine.
A Company currently has 230 units of a product on-hand that it orders every three weeks when the salesperson visits the premises. Average demand for the product is 20 units per day with a standard deviation of 5 units. Lead time for the product to arrive is seven days. Management has a goal of 95 percent probability of not stocking out for this product. The salesperson is due to come in late this afternoon when 210 units are left in stock. How many units should be ordered?
EmKay Hardware just purchased a new commercial forklift for $12,000. First year's O&M costs
2)
are expected to be $1,000 and they are expected to increase by 10% per year over the previous year's cost from
the second year onwards. The firm expects to sell the forklift for $1,200 at the end of its useful life of 6 years.
MARR is 10% per year compounded annually.
a)
b)
forklift.
What is the capital recovery (CR) cost for the commercial forklift?
Determine the equivalent uniform annual cost for owning and operating this commercial
Chapter 4 Solutions
MyLab Operations Management with Pearson eText -- Access Card -- for Operations Management: Processes and Supply Chains
Ch. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - The Dahlia Medical Center has 30 labor rooms, 15...Ch. 4 - A process currently services an average of 50...Ch. 4 - An airline company must plan its fleet capacity...Ch. 4 - Food Goblin Supermarkets use both cashiers and...Ch. 4 - Returning to Problem 4, under both assumption of...Ch. 4 - Purple Swift manufactures birdhouses in lots of...Ch. 4 - Macon Controls produces three different types of...Ch. 4 - Up, Up, and Away is a producer of kites and wind...
Ch. 4 - Tuff-Rider, Inc. manufactures touring bikes and...Ch. 4 - Arabelle is considering expanding the floor area...Ch. 4 - The Astro World amusement park has the opportunity...Ch. 4 - Kim Epson operates a full-service car wash, which...Ch. 4 - MKM International is seeking to purchase a new CNC...Ch. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - Prob. 19PCh. 4 - Dawson Electronics is a manufacturer of high-tech...Ch. 4 - A manager is trying to decide whether to buy one...Ch. 4 - Acme Steel Fabricators experienced booming...Ch. 4 - Referring to Problem 7, the operations manager at...Ch. 4 - Darren Mack owns the Gas n’ Go convenience store...Ch. 4 - Prob. 25PCh. 4 - Prob. 1VCCh. 4 - Prob. 2VCCh. 4 - How does Southwest Airlines know they are...Ch. 4 - Prob. 4VCCh. 4 - Prob. 1CCh. 4 - Prob. 2CCh. 4 - Prob. 3C
Additional Business Textbook Solutions
Find more solutions based on key concepts
Many companies including Company OM tried to implement dynamic pricing in their ticketing system. The dynamic p...
Principles of Operations Management: Sustainability and Supply Chain Management (10th Edition)
The flowchart for the process at the local car wash. Introduction: Flowchart: A flowchart is a visualrepresenta...
Principles Of Operations Management
There is a huge demand in the United States and elsewhere for affordable women’s clothing. Low-cost clothing re...
Loose-leaf for Operations Management (The Mcgraw-hill Series in Operations and Decision Sciences)
2. Identify four people who have contributed to the theory and techniques of operations management.
Operations Management
There is a huge demand in the United States and elsewhere for affordable women’s clothing. Low-cost clothing re...
Operations Management
2. In what circumstances might a market-pull approach or a technology-push approach to new-product design be th...
OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN: DECISIONS & CASES (Mcgraw-hill Series Operations and Decision Sciences)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.Similar questions
- Company DEF has a choice of two machines to purchase. They both make the same product which sells for P10. Machine A has FC of P5,000 and a per unit cost of P5. Machine B has FC of P15,000 and a per unit cost of P1. Under what conditions would you select Machine A?arrow_forward49. Maintenance costs for a new facility are expected to be $1i12,000 for the first year of operation. It is anticipated that these costs will increase at a rate of 8 percent per year. Assuming a rate of return of 10 percent, what is the present value of the stream of maintenance costs over the next 30 years?arrow_forwardCompany QXL has generated $1 million in gross sales for Q4, 2021, which is 5% higher than its gross sales for Q3, 2021. However, Q4 is considered as the peak season for QXL. Comparing with the previous peak season, its current Q4 gross sales are 2% lower than the gross sales for Q4 2020. When a client asks Winona (who is a financial planner) for investment advice on QXL, Winona suggests the client to invest in QXL. She only presents the percentage change in gross sales from Q3 to Q4 2021 (i.e. 5% increase) and tells the clients that this is a positive signal of increase in its future price. You are required to establish what is unethical and which Standard is most likely violated.arrow_forward
- Fedori Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Machinery Division has asked the Parts Division to provide it with 4,000 special parts each year. The special parts would require P23.00 per unit in variable production costs. The Machinery Division has a bid from an outside supplier for the special parts at P37.00 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the YR24 that it presently is producing. The YR24 sells for P40.00 per unit, and requires P28.00 per unit in variable production costs. Packaging and shipping costs of the YR24 are P3.00 per unit. Packaging and shipping costs for the new special part would be only P1.50 per unit. The Parts Division is now producing and selling 15,000 units of the YR24 each year. Production and sales of the YR24 would drop by 20% if the new special part is produced for…arrow_forwardBelow is a decision table for Gregor’s Tennis School. Director Gregor Anderson is considering expanding his school to accommodate the potential increased interest in youth tennis lessons, camps and teams. The decision table below describes his situation.Decision Table State of Nature Alternatives High Demand Moderate Demand Low Demand Add a new building 30,00030,000 9,5009,500 −35,000-35,000 Extend hours for existing building 25,00025,000 4,2004,200 −4,000-4,000 Do Nothing 00 00 00 Step 2 of 3: What is the estimated payoff for adding a new building during moderate demand?arrow_forwardA firm is selling two products, chairs and bar stools, each at $50 per unit. Chairs have a variable cost of $25, and bar stools $20. Fixed cost for the firm is $20,000. If the sales mix changes to 1. 4 (one chair sold for every four bar stools sold) what is theb break-evenpoint in dollars of sales? In units of chairs and bar stools?arrow_forward
- I need the answer quicklyarrow_forwardA building has an NO of $130,000 and is being valued with acap rate of 4%. Using the income approach, what is the value of the building? $3,250,000 $2.450,000 $1,300,000 $4.130,000arrow_forward* 00 Miles is considering buying a new pickup truck for his lawn service firm. The economy in town seems to be growing, and he is wondering whether he should opt for a subcompact, compact, or full-size pickup truck. The smaller truck would have better fuel economy, but would sacrifice capacity and some durability. A friend at the Bureau of Economic Research told him that there is a 30% chance of lower gas prices in his area this year, a 20% chance of higher gas prices, and a 50% chance that gas prices will stay roughly unchanged. Based on this information, Miles has developed a decision table that indicates the profit amount he would end up with after a year for each combination of truck and gas prices. States of Nature Lower gas Gas prices Higher gas Alternatives prices unchanged prices Subcompact 19,000 000 Compact OGOʻST 000 Full size 000'9 Probability 0.3 0.5 0.2 MacBook Air 000 000 DD F7 08 F4 F5 6 %24 ) 9 | K. D.arrow_forward
- Would the choice of denominator level affect the amount of the fixed factory overhead budget variance? Fixed overhead production volume variance? Explainarrow_forwardA farmer in mufulira, copper belt province of Zambia would like to introduce a new product .it has estimated that the cost of purchasing, delivery and installation the new machine required to manufacture the product is k160, 000.the expected life span of the product is six years. The first revenues 200,000 second 240,000 and 220,000, Revenues estimates are k205,000 in each of the remaining three years. The incremental variable of producing the product are estimated to be 54% of the revenues. The marginal tax rate of the farm is 40% of the revenues. The machine purchased will have a salvage value of k35,000 and the farm is expecting to recoup k10,000 of its working capital at the end of six years. The farm has fixed cost of k30,000.a. Calculate the IRR at a discount rate of your choice.arrow_forwardA manager is trying to decide whether to buy one machineor two. If only one is purchased and demand proves to beexcessive, the second machine can be purchased later. Somesales will be lost, however, because the lead time for produc-ing this type of machine is six months. In addition, the costper machine will be lower if both are purchased at the sametime. The probability of low demand is estimated to be 0.20.The after-tax net present value of the benefits from purchas-ing the two machines together is $90,000 if demand is lowand $180,000 if demand is high.If one machine is purchased and demand is low, the netpresent value is $120,000. If demand is high, the managerhas three options. Doing nothing has a net present value of$120,000; subcontracting, $160,000; and buying the secondmachine, $140,000.a. Draw a decision tree for this problem.b. How many machines should the company buy initially?What is the expected payoff for this alternative?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,
Operations ManagementOperations ManagementISBN:9781259667473Author:William J StevensonPublisher:McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi...Operations ManagementISBN:9781259666100Author:F. Robert Jacobs, Richard B ChasePublisher:McGraw-Hill Education
Purchasing and Supply Chain ManagementOperations ManagementISBN:9781285869681Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. PattersonPublisher:Cengage Learning
Production and Operations Analysis, Seventh Editi...Operations ManagementISBN:9781478623069Author:Steven Nahmias, Tava Lennon OlsenPublisher:Waveland Press, Inc.
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.
Inventory Management | Concepts, Examples and Solved Problems; Author: Dr. Bharatendra Rai;https://www.youtube.com/watch?v=2n9NLZTIlz8;License: Standard YouTube License, CC-BY