Exercise 3: Determining Production Capacity Needed at Toyota Motor Manufacturing
ID: 439211 • Letter: E
Question
Exercise 3: Determining Production Capacity Needed at Toyota Motor Manufacturing of Canada (TMMC) . To maximize profit earned during this period, which production capacity should TMMC in 2000 decide to build - 10,000, 15,000, 20,000, 25,000, or 30,000 cars? Justify your choice. b. What are the weaknesses or limitations in this analysis? How might they be corrected or reduced? c. It is now fall 2011. How well has the RX-330/350 actually done in the North American market? Is its quality rated as high as if it were made in Japan? Do some online research; it's part of improving your attainment of Information Literacy, one of the UMUC MBA Competencies.Explanation / Answer
It is spring 2000, and TMMC has indeed just been chosen to produce the new Lexus RX 330 line, with the first units deliverable in 2003. Toyota must now determine the amount of annual production capacity it should build. Toyota's goal is to maximize the profit from this line over the five years from 2003-2007. These vehicles will sell for an average of $37,000 and incur a unit production cost of $28,000. 10,000 units of annual production capacity can be built for $50M (M=million) with additional blocks of 5,000 units of annual capacity each costing $15M. Each block of 5,000 units of capacity will also cost $5M per year to maintain, even if the capacity is unused.
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