Pearson eText Principles of Operations Management: Sustainability and Supply Chain Management -- Instant Access (Pearson+)
Pearson eText Principles of Operations Management: Sustainability and Supply Chain Management -- Instant Access (Pearson+)
11th Edition
ISBN: 9780135639221
Author: Jay Heizer, Barry Render
Publisher: PEARSON+
Question
Book Icon
Chapter 8, Problem 19P

a)

Summary Introduction

To determine: The output at which two locations will have same profit.

Introduction: Location is one of the important element for a business that controls the cost and expenses. Location strategies support in framing other strategies for a firm where optimal location point will provide competitive advantage to a firm.

a)

Expert Solution
Check Mark

Answer to Problem 19P

At 120 machine tools, the profits at both the locations are identical.

Explanation of Solution

Given information:

Site Fixed cost per year Variable cost per year
B $800,000 $14,000
Mc $920,000 $13,000

Calculation to find the output at which two locations will have same profit:

Denote the volume of production of machine tools as “x”.

Given the selling price of each machine tool at $29,000, the total revenues, denoted by TR are

TR=$29,000x (1)

Given the B location has a fixed cost of $800,000 per year and a variable cost of $14,000, express the total cost TCB for a production volume of “x” machine tools as follows.

TCB=$14,000x+$800,000 (2)

Given the Mc location has a fixed cost of $920,000 per year and a variable cost of $13,000, express the total cost TCMc for a production volume of “x” machine tools as follows.

TCMc=$13,000x+$920,000 (3)

Calculate the volume of output “x” where both locations have the same profit

$29,000×x$14,000×x$800,000=$29,000$13,000×x$920,000($29,000$14,000)×x$800,000=($29,000$13,000)×x$920,000$1,000×x=$120,000x=120units

Equating the equations and solving for x, the volume of production of 120 machine tools, the profits at both the locations are identical.

Hence, at 120 machine tools, the profits at both the locations are identical

b)

Summary Introduction

To determine: The output at which location B will have high profit than location Mc.

Introduction: Location is one of the important element for a business that controls the cost and expenses. Location strategies support in framing other strategies for a firm where optimal location point will provide competitive advantage to a firm.

b)

Expert Solution
Check Mark

Answer to Problem 19P

Upto production level of 120 units Location B will have high profit.

Explanation of Solution

Given information:

Site Fixed cost per year Variable cost per year
B $800,000 $14,000
Mc $920,000 $13,000

Calculation to find the output at which location B will have high profit than location Mc:

To find out at what range of output the location B will have higher profits compared to the location Mc draw graphs of the two cost functions TCB and TCMc besides the revenues TR as shown below.

Pearson eText Principles of Operations Management: Sustainability and Supply Chain Management -- Instant Access (Pearson+), Chapter 8, Problem 19P

The graph lines for TCB and TCMc intersect at a production volume of 120 machine tools.

The location B is cost effective up to a production volume of 120 units. Therefore, profitability also will be higher at location B upto a production level of 120 units.

Hence, upto production level of 120 units Location B will have high profit.

c)

Summary Introduction

To determine: The output at which location Mc will have high profit than location B.

c)

Expert Solution
Check Mark

Answer to Problem 19P

For production level above 120 units Location Mc will have high profit.

Explanation of Solution

Given information:

Site Fixed cost per year Variable cost per year
B $800,000 $14,000
Mc $920,000 $13,000

Calculation to find the output at which location Mc will have high profit than location B:

For production volumes above 120 machine tools, the Mc location is preferable as costs are lower and the profitability improves.

Hence, above production level of 120 units Location Mc will have high profit.

d)

Summary Introduction

To determine: The break-even point of each location.

d)

Expert Solution
Check Mark

Answer to Problem 19P

The break-even point for location B is 54 machine tools and for location Mc is 58 machine tools.

Explanation of Solution

Given information:

Site Fixed cost per year Variable cost per year
B $800,000 $14,000
Mc $920,000 $13,000

Calculation of break-even point:

Calculate the break even point for Bhnm location by linking equations (1) and (2), since at the break even point the total revenues are same as total costs.

14,000×x+800,000=29,000×x15,000x=800,000x=800,00015,000=53.3

Ignoring the fractional part, the location B breaks even at a production volume of 54 machine tools.

Similarly calculate the break even point for Mckny location by linking equations (1) and (3), since at the break even point the total revenues are same as total costs.

13,000×x+920,000=29,000×x16,000x=920,000x=920,00016,000x=57.5

Ignoring the fractional part, the Mc location breaks even at a production volume of 58 machine tools. Breakeven production volumes for both the locations are much below the crossover production volume of 120 machine tools.

Hence, the break-even point for location B is 54 machine tools and for location Mc is 58 machine tools.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
provide scholarly reseach and references for the following 1. explain operational risks and examples of such risk faced by management at financial institutions 2. discuss the importance of establishing an effective risk management policy at financial institutions to manage operational risk, giving example of a risk management strategy used by financial institutions to mitigate such risk.   3. what is the rold of the core principles of effective bank supervision as it relates to operational risk, in the effective management of financial institutions.
Please show all units, work, and steps needed to solve this problem I need answer typing clear urjent no chatgpt used pls i will give 5 Upvotes.
IM.82 A distributor of industrial equipment purchases specialized compressors for use in air conditioners. The regular price is $50, however, the manufacturer of this compressor offers quantity discounts per the following discount schedule: Option Plan Quantity Discount A 1 - 299 0% B 300 - 1,199 0.50% C 1,200+ 1.50% The distributor pays $56 each time it places an order with the manufacturer. Holding costs are negligible (none) but they do earn 10% annual interest on all cash balances (meaning there will be a financial opportunity cost when they put cash into inventory). Annual demand is expected to be 10,750 units. When there is no quantity discount (Option Plan A, the first row of the schedule listed above), what is the adjusted order quantity? (Display your answer to the nearest whole number.) 491 Based on your answer to the previous question, and based on the annual demand as stated above, what will be the annual ordering costs? (Display your answer to the…
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,
Text book image
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