Question

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 six 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 0.20 and that of high demand to be 0.80. The after-tax NPV of the benefits from purchasing two machines together is $70,000 if demand is low and $180,000 if demand is higlh If one machine is purchased and demand is low, the NPV is $100,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $100,000; (2) subcontracting, with an NPV of $150,000; and (3) buying the second machine, with an NPV of $140,000 a. Choose the correct decision tree for this problem. Note that each payoff is given in thousands of dollars. Low demand Low demand 70 Do nothi 100 Do nothin Buy 1 100 100 0.20 uy High demand Subcontract Subcontract machine High demand 150 0.80 Low demand Buy 2 Low demand100 machines uy 140 140 70 machines 2 0.20 uy machines High demand 0.80 machines High demand 180 180 C. Low demand Low demand 100 100 Do nothin 2 0.80 100 0.20 uy Do nothin Subcontract 100 High demand machine HigdSubcontract50 0.20 140 Low demand 0.80 70 machines Buy 2 0.80 Buy 1 Buy 2 machines Low demand 140 High demand 180 70 0.20 0.20 b. What is the best decision and what is its expected payoff? Best decision is to buy machine(s) and its expected payoff is Enter your responses as integers.) Up, Up, and Away is a producer of kites and wind socks. Relevant data on the bottleneck operation in the shop for the upcoming fiscal year are given in the following table: Item Kites Wind Socks Demand forecast 30,000 units/year 12,000 units/year 60 units Lot size 20 units Standard processing time Standard setup time 0.4 hour/unit 1.0 hour/unit 4.0 hours/lot 3.0 hours/lot The shop works two shifts per day, 8 hours per shift, 180 days per year. Currently, the company operates four machines, and desires a 25 percent capacity cushion. How many machines should be purchased to meet the upcoming year's demand without resorting to any short-term capacity solutions? The number of additional machines required isEnter your response rounded up to the next whole number.) Kim Epson operates a full-service car wash, which operates from 8 A.M. to 8 P.M. seven days a week. The car wash has two stations: an automatic washing and drying station that can handle 30 cars per hour and an interior cleaning station that can handle 190 cars per day. Based on a recent year-end review of operations, Kim estimates that future demand for the interior cleaning station for the seven days of the week, expressed in the average number of cars per day, would be as follows Tues Wed Thurs Sat Day Sun on ri 150 270 Cars 160 180 140 290 270 By installing additional equipment (at a cost of $90,000) Kim can increase the capacity of the interior cleaning to 300 cars per day. Each car wash generates a pretax contribution of $5.00. Should Kim install the additional equipment if she expects a pretax payback period of three years or less? Kim ▼I install the additional equipment because the payback period is | | years. (Enter your response rounded to two decimal places.) should not should Spartan Castings must implement a manufacturing process that reduces the amount of particulates emitted into the atmosphere. Two processes have been identified that provide the same level of particulate reduction. The first process is expected to incur $680,000 of fixed cost and add $30 of variable cost to each casting Spartan produces. The second process has fixed costs of $200,000 and adds $90 of variable cost per casting. a. What is the break-even quantity beyond which the first process is more attractive? The break-even quantity is castings. (Enter your response as an integer.) IS

Answer 1

a) oplorn mochine and is ex peried poyo s d) 8est decision is to by 50 Give l b Subcontsaco -2 hliod Sock5 tern Kites Derrard foecost 2.000 units/year tot Sioe 9o onits ohas onib 3 o houes Jbe Here Shift po» day Hoots Por Shift Doy 180 avouloble Cv) . Tobal 0 880 hours

Houxs avolableeer af deducirg desived copacly Si ω, kites 10 o S Set op time No oho of opeation CCoshion Copocity 30r000 30,000 x 0.4 Kis wind 100

13000 45oo) (12000 t 800 160 [65d0 + 8o0 &l60 99300 訂60 13. 56 u0 Given Copati90 Cs pes doy rer) 190 ConSpe Doy 60 l90 Copacity 190 80 80 100

Uei dermori boged oo inces copocty 300 CorS pa da 1300 per coeek oryearacdifionol pieloctibutibn13005 x? 135,200 or 3 yeas kin Should nStl be addiionat eqp becse e payback period 1S 3 yearS

Given Γι: 680000 ' F soo boo . ГЈ:800000 .At tte Point of diffeence, e coi of fastard rd poce Ret b * break evenrty 680000- a00000 : ( 30'סף) Q 48oooo 60 G 8ooD breakPven QuanSooo onls