This is a Business Analytics Question

Written Problem 1

Standard Motor Parts produces fuel injectors for the after market, supplying retailers such as Walmart and NAPA Auto Parts. Standard Motor is considering adding a robotic and conveyance system that would bring parts to the welder and send to the next station. Implementation would cost $120,000/year and would replace some existing manual labor positions.[1] Suppose that the facility already had annual overhead costs (facility management, utilities, etc.) of $260,000 and that the new system would lower average variable costs (material and labor) from $11 to $9 per injector.

1. If Standard Motor Parts sells these injectors for $26.95 each:

1. What is the break-even level of production/sales if they choose to implement the new robotic arm and conveyance system? Draw a graph as well to depict this break-even point (depict revenue vs. cost).

2. What if they do not implement the new robotic arm and conveyance system? Determine the break-even level of production/sales in this situation.

2. What annual production level do you need to reach to justify this new robotic & conveyance system (assume that the fuel injectors will sell for the same price regardless of the production system)?

3. What assumptions have we made that have simplified this analysis?

4. If the price remains $26.95/injector, describe what the firm should do in each of the demand conditions below. In each case, be sure to provide evidence to support your answer and compute the profit for your suggested approach.

1. When demand is 20,000 injectors per year

2. When demand is 150,000 injectors per year