Question 1: June, a facility engineer at the Mississauga plant of Computer Produ
ID: 3195338 • Letter: Q
Question
Question 1: June, a facility engineer at the Mississauga plant of Computer Products Corporation (CPC), is studying a process selection decision at the plant. A new machine is to be manufactured and she must decide whether the machine will be auto-assembled or manually assembled. The decision is complicated by the fact that annual production volume is expected to increase by almost 50% over three years. June has developed these estimates for two alternatives for the machine assembly process:
Auto-
Assembly
Process
Manual
Assembly
Process
Annual fixed cost
$690,000
$269,000
Variable cost per product
$29.00
$31.00
Estimated annual production
(in number of products):
Year 1
150,000
150,000
Year 2
190,000
190,000
Year 3
220,000
220,000
Which production process would be the least-cost alternative in Years 1, 2, and 3?.
How much would the variable cost per unit have to be in Year 2 for the auto-assembly process to justify the additional annual fixed cost for the auto-assembly process over the manual assembly process?
Write algebraic solution for both parts. Introduce your variables before you choose to use that variable in an equation.
Auto-
Assembly
Process
Manual
Assembly
Process
Annual fixed cost
$690,000
$269,000
Variable cost per product
$29.00
$31.00
Estimated annual production
(in number of products):
Year 1
150,000
150,000
Year 2
190,000
190,000
Year 3
220,000
220,000
Explanation / Answer
First Answer
The bold answers are the least cost alternative in Year 1, Year 2 and Year 3
690,000 + 29*150,000 = 5,040,000
Year 2
Year 3
Second Answer
Let the variable cost per unit have to be in Year 2 for the auto-assembly process be x
we can write the equation as,
690,000 + x*190,000 < 269,000 + 31*190,000
=> x < 28.784
So, the variable cost per unit have to be in Year 2 for the auto-assembly process should be less than $ 28.784 in order to justify the additional annual fixed cost for the auto-assembly process over the manual assembly process
Auto Assembly Process Manual Assembly Process Year 1690,000 + 29*150,000 = 5,040,000
269,000 + 31*150,000 = 4,919,000Year 2
690,000 + 29*190,000 = 6,200,000 269,000 + 31*190,000 = 6,159,000Year 3
690,000 + 29*220,000 = 7,070,000 269,000 + 31*220,000 = 7,089,000Related Questions
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