ackground:

You are a production manager at a manufacturing company that produces electronic gadgets. Your company is considering investing in a new production line to manufacture a cutting-edge gadget. The decision-making process involves various aspects of engineering management. You need to assess the financial feasibility, and review some of the production planning concepts for this assignment.

Question:

Your task is to evaluate the investment in the new production line for the gadget and make recommendations to the management. Here are the key details:

Investment and Depreciation: The new production line will cost $1,200,000. It has a useful life of 5 years and no salvage value. The company uses the Straight-Line (SL) depreciation method. [use Tax rate of 15% if needed]

Operating Costs and Income: The annual operating cost for the new production line is estimated at $400,000. The selling price per unit of the gadget is $85, and the variable cost per unit is $26. Other periodic expenses (GA and Sales ) are about 45,000 per year (increasing 4% per year).

Forecasting: historical sales data for similar products were (7700, 6500, 7200, 7800, 7400, 7500), and you need to forecast future sales using Moving Average with period 3 (MA₃).

Budgeting: Prepare an income statement for the next 5 years of operation, including revenues, expenses, and net income. Ensure that your income statement is consistent with your sales forecasts.

Instructions:

a- Calculate the payback period for the investment in the new production line.

b- Prepare a forecast for the gadget's sales using the Moving Average (MA₃) method.

c- Create the budgeted income statement for the first 5 years of operation.

d- Create the budgeted income statement if the demand is expected to increase 2.5% per year.

e- What would your recommendations to management be?

f- [Bonus] Assume the line can produce another product B, selling price $56, cost is $13 per unit. The demand for this product is known to be at most 15000 per year for the next 5 years. The time needed to produce one product of A is 14 min per unit, for part B it needs 7 min per unit, the available time per year for the line is 1920 hours per year. What is the optimal mix of producing products A and B, use linear programming to solve this problem.