KINGCOLAHAINTAA III) 20 PTS THE KING COLA COMPANY OF HAYWARD IS CONSIDERING ALTE
ID: 422448 • Letter: K
Question
KINGCOLAHAINTAA III) 20 PTS THE KING COLA COMPANY OF HAYWARD IS CONSIDERING ALTERNATIVE MAINTENANCE CONTRACTS WITH BAY AREA FIRMS FOR ITS SODA FILL- ING MACHINES. HISTORICAL DATA SMART ZES THE NUMBER OF MAINTENANCE CALLS MONTHLY WITH THE LIKELIHOODS AS SHOWN BELOW: PERCENT OF OTHS .20 0.20 0.20 0.15 0.15 0.10 EACH CALL CURRENTLY RESULTS IN A CHARGE OF $400. S500 A MAINTENACE CONTRACT WITH THE ABC COMPANY WOULD cOST MONTHLY, BUT THE COMPANY WOULD GUARANTEE THAT COSTS FOR CALLS WOULD BE BILLED AT HALF THE RATE KING COLA IS NOW PAYING. THE DEF MAINTENANCE COMPANY WOULD CHARGE A MONTHLY FEE OF $450, BUT WOULD GUARANTEE THAT KING COLA WOULD NEVER BE BILLED FOR MORE THAN ONE CALL PER MONTH (AT THE CURRENT RATE OF $400 PER CALL). ANY ADDITIONAL MONTHLY CALLS WOULD BE PAID FOR BY DEF F?NALLY. THE GHI MA?NTENANCE COMPANY wouLD CHARGE A MONTHLY FEE OF $550 BUT WOULD COVER ALL MAINTENANCE AND CALL COSTS TO KING COLA. 5 PTS. A) IF KING COLA CONTINUES WITH THE CURRENT POLICY, MAINTENACE? SHOW YOUR CALCULATION. 5 PTS. B) IF KING COLA CONTRACTS WITH THE ABC COMPANY, WHAT IS THE EXPECTED MONTHLY COST FOR FILLING MACHINE MAINTENANCE? SHOW YOUR CALCULATION. 5 PTS. C) IF KING COLA CONTRACTS WITH THE DEF COMPANY WHAT IS THE EXPECTED MONTHLY COST FOR FILLING MACHINE MAINTENANCE? SHOW YOUR CALCULATIONS. 5 PTS. D) CHOOSE BETWEEN THE CURRENT FILLING MACHINE MAINTENANCE POLICY, THE ABC CONTRACT, THE DEF CONT OR THE GHI CONTRACT. WHAT IS THE EXPECTED MONTHLY COST TO KING COLA FOR THIS POLICY? SHOW ANY CALCULATIONS. RACT, Page 1Explanation / Answer
A) Expected number of maintenance calls = 0*0.20+1*0.20+2*0.20+3*0.15+4*0.15+5*0.10 = 2.15 calls per month
Expected monthly cost of current policy = 2.15*400 = $ 860
B) ABC company, expected monthly cost = 500 + 2.15*200 = $ 930
C) DEF company, expected monthly cost = 450 + MIN(2.15,1)*400 = $ 950
D) GHI company, expected monthly cost = $ 550
The lowest expected cost is $ 550 for GHI company. Therefore, King Cola should contract with GHI company.
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