Yorkville University Instructor: Eugene Lee

BUSI 2113 (Production and Operations Management) Exercise 6 (Due November 19th (Thurs) 11:00 p.m.)

Students should submit their solutions in .pdf format to the Moodle platform by the due date. May I remind students that solutions with detailed working presented in a clear, decent, formal, precise and concise manner, in simple but grammatically correct English are required. Sketch diagrams whenever necessary.

Full marks will only be given to solutions with logical and adequate explanations. No mark will be given to answers without any justifications or solution procedures. Late submission policy applies.

Question 1

A firm is about to undertake the manufacture of a product, and is weighing the process configuration options. The operation manager of the firm has identified and calculated the cost for three feasible production process alternatives. The fixed cost and the variable cost of the three production processes are listed below.

( a ) Determine all the crossover points and identify the output ranges where each production process should be used.

( b ) If the firm adopts Process B to manufacture 400 units of the product, what is the minimum selling price the firm should set for the product in order not to incur a loss (assume all 400 units can be sold)?

Question 2

A producer is currently selling three different brands (Brand A, Brand B, and Brand C) of freezers. Brand A is sold for $300 and its variable cost is $60; Brand B is sold for $100 and its variable cost is $65; Brand C is sold for $250 and its variable cost is $140.

The producer received a forecast of sales of 1200 units of Brand A, 600 units of Brand B, and 1000 units of Brand C freezers for the coming year from the most recent market research conducted. Suppose the annual total fixed cost (i.e., rent, equipment, utilities, etc.) is $280,000, determine the break-even point in dollars for the coming year.

On average, how much sales (in dollars) should be generated each month in order to break-even?

~ END ~

Process A

Process B

Process C

Fixed Cost

$18,000

$15,000

$10,000

Variable Cost

$28

$35

$40