Question

Assignment A3 Problem: Toyota investigating the possibility to manufacturing a gearbox for one of their models. There are three process strategies (A, B, and C) to manufacture this gearbox. A solution of selection for convenient strategy is the crossover procedure. You are assigned to a team to analyze the three processes for this product based on the following information: Given 1. You have 3 choices to manufacture the gearbox: A, B, & (C 2. Fixed costs/year (FC) are constant for the rang of probable output a. Choice A:$1,800,000 b. Choice B: S2,600,000 c. Choice C:$3,100,000 3. Variable Cost per one connector as follows (VC) a. Choice A:$458 b. Choice B:$220 c. Choice C:$150 4. Variable costs are linear for the range of probable output 5. Only one product is involved "Gearbox" 6. For cost analysis: Total Cost FC VC * 1.3*Q; where FC-Fixed cost VC- variable cost per unit QQuantity or volume of output Deliverables (Use Excel spread sheet 1. Prepare Excel table which include a. b. c. Fixed cost Variable cost associated to each gearbox Break even points (V1, V2 and V3) for the following choices of product focuses (find them algebraically, include the detail of your calculation): i. A vs. EB ii. A vs. C 2. 3. Plot the total-cost lines for these three process on a single graph. Compare your results in 1.c, with graph in step 2 (there must consistency between the algebraic and graphical results) Include in your Excel sheet dynamic calculation of the total cost & total profit for the following data: 4. a. R: is revenue per gearbox S650 b. Total Profit - Q*(1.1*R- VC*1.3) -FC Calculate (b) for THE VOLUME CHOICES (Q): 5000, 6000, 12000, and 15000 cell reference in your excel sheet) - (Calculated via 5. Plot the total-cost lines for process A, B, and C with total revenue (1.1*R*Q) on a single graph for range of quantities (0 to 20000, in step of 2000) 6. Discuss your findings on step4 and step:5

Answer 1

1.

3 Data 4 Fixed cost 5 Variable cost $1,800,000$2,600,000 $3,100,000 $150 $458 $220 Results algebrically 8 Breakeyen points Units 9 AVs. B 0 A Vs. C 11 B Vs. C Total cost $2,585.65 $3,339,495.80 $3,246.75 $3,528,571.43 $5,494.51 $4,171,428.57

Explanation:

Let, break-even points of A Vs B is x

At x, total cost of A and B will be equal

So algebraically,

1800000+458*1.3x = 2600000+220*1.3x(as total cost formula is given in question as FC+VC*1.3*Quantity)

Or, x = 2585.65 = 2586(rounding up to nearest whole number as technically break-even unit can not be in decimal).Likewise break even points for A vs C and B Vs C is calculated

2.

Total cost for Process A,B and C $8,000,000 $7,000,000 $6,000,000 5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000

Graph Data

. 3. From graph we can see total cost line of A and B crossed each other at break-even point of 25863.

Graph-data Quantit Total Cost $1,800,000 $2,600,000 $3,100,000 500 S2,097,700 $2,743,000 $3,197,500 1000 $2,395, 400 $2,886,000 $3,295,000 1500 $2,693,100 $3,029,000$3,392,500 2000 $2,990,800 $3,172,000 $3,490,000 2500 $3,288,500 $3,315,000 $3,587,500 3000 $3,586,200 $3,458,000$3,685,000 3500 $3,883,900 $3,601,000$3, 782,500 4000 $4,181,600 $3,744,000$3,880,000 $3,977,500 $4,075,000 5500$5,074, 700 4,173,000 $4,172,500 $5, 372,400$4,316,000 $4,270,000 6500$5,670,100 $4,459,000$4,367,500 $4,602,000 $4,465,000 75001 $6,265,500| $4,745,000丨 $4,562,500 8000$6,563,200 $4,888,000$4,660,000 8500$6,860,900 $5,031,000$4,757,500 9000 7,158,600 $5,174,000 4,855,000 $4,479,300 $3,887,000 5000$4,777,000 $4,030,000 7000$5,967,800

Same is true for cross-over points of A Vs C and B Vs C.

Total cost lines always cross-over each others at break-even points as that is the point where total costs become equal

4.

Revenue per gear $650 Quantity ТРА TPB TPC 5000 (51,202,0000) ($45,0000) (6500,00.0 5000 ($1,202,000.0) ($455,000.0) ($500,000.0) 6000 ($1,082,400.0($26,000.0) $20,000.0 12000 ($364,800.0) $2,548,000.0 $3,140,000.0 15000 ($6,000.0) 3,835,000.0 $4,700,000.0

5.

Chart Title $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 SO 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 --A B--C Total Revenue

Graph Data

Quantit Total Cost Total Revenue 0 $1,800,000$2,600,000 $3,100,000 4,888, 12000$8,944, 800 $6,032,000 $5,440,000 $8,580,000.0 5,83 16000| $11,326,400| $7,176,000 $6,220,000|$11,440,000.0 12,87 8,32

6.

Findings On step 4

1. we could see Process A is profitable for higher number of units than B and C
2. Profitability is highest for Process C and lowest for Process A
3. For number of units <5962 all the three process are non-profitable

Findings On step 5

1. Cost line of A is most steep so cost tends to increase at highest rate with increasing quantity
2. Cost line of C is most flat so cost tends to increase at lowest rate with increasing quantity
3. Revenue line cuts cost line of A at 15050.17 and march ahead
4. At 6061 quantities , total revenue line meets total cost line for B
5. At 5962 quantities(exact point = 5961.538), total revenue line meets total cost line for C