Question

This problem involves doing the cross over calculations like the example on top of page 287 12th edition L07.2 or page 277 9th edition. (L02). You do not have to draw the charts as illustrated in figure 7.3.

For question 1, you can multiply and get the solution. I got this correct

For question 2, you can solve this problem by multiplying each option which is a longer process of solving it. Do not use this process. The intent of this exercise is for your to use the easier, short process of cross over analysis. If you use the longer process, you will receive a zero and ask to submit again.

For question 3, use the analysis you completed in question 2 to answer the question. No additional calculations are required.

I already got number 1 correct. not sure how to do crossover method for 2 and 3

Problem 7:1

Tanner’s Machine Shop, Inc., has a 1-year contract for the production of 350,000 gear housings for a new off-road vehicle. Owner, Danny Tanner, has developed costs for three manufacturing alternatives. They are manufacturing using general-purpose equipment (GPE), a flexible manufacturing system (FMS), and an expensive, but efficient, dedicated machine (DM). The cost data follow:

	general-purpose equipment (GPE)	flexible manufacturing system (FMS)	dedicated machine (DM)
Annual contracted units	350,000	350,000	350,000
Annual fixed cost	$100,000	$250,000	$550,000
Per unit variable cost	$15.00	$12.00	$10.00

1. Which process is best for this contract?

2. Determine the economical volume for each process.

3. Determine the best process for each of the following volumes: (1) 40,000 (2) 55,000 and (3) 100,000.

Answer 1

Contract of production Q = 3,50,000

Total cost = Fixed cost + Unit variable cost*Quantity

GPE total cost = 100000 + 15Q

FMS total cost = 250000 + 12Q

DM total cost = 550000 + 10Q

Best Contract:

Q = 3,50,000

GPE total cost = 100000 + 15*350000 = 53,50,000

FMS total cost = 250000+12*350000 = 44,50,000

DM total cost = 550000 + 10*350000 = 40,50,000

Total cost is less for DM. So best process for this contract is DM

Economical volume for each process:

Cross over point is the point where total costs will be equal

GPE total cost = FMS total cost

100000 + 15Q = 250000 + 12Q

3Q= 150000

Q = 50,000 units

FMS total cost = DM total cost

250000 + 12Q = 550000 + 10*Q

2Q = 300000

Q = 1,50,000

From this we can say

GPE is more economical when the production quantity is below 50000 units

FMS is more economical when the production quantity is within the range of 50,000 and 1,50,000

DM is more economical when production quantity is above 1,50,000 units

From the above we can say,

If Q = 40000, the best process is GPE

If Q = 55000 the best process is FMS

If Q = 100,000 the best process is FMS