Chapter 5 Solutions

1.

a.

Utilization =
Efficiency =

Actual output
7
=
= 70%
Design capacity 10

Actual output
7
= = 87.5%
Effective capacity 8
Actual output

b. Utilization = Design capacity = 6 = 67%

Efficiency =

Actual output
4
= = 80%
Effective capacity 5

c. This is not necessarily true. If the design capacity is relatively high, the utilization
could be low even though the efficiency was high.
2.

Efficiency =

Actual output
= 80%
Effective capacity

Actual output = .8 (Effective capacity)

Effective capacity = .5 (Design capacity)
Actual output = (.5)(.8)(Effective capacity)
Actual output = (.4)(Design capacity)
Actual output = 8 jobs
Utilization = .4
Utilization =

Actual output
Design capacity

Design Capacity =

3.

Actual output
8
= = 20 jobs
Effective capacity .4

FC = $9,200/month
VC = $ .70/unit
Rev = $ .90/unit
a. Q BEP =

FC
$9,200
=
= 46,000 units
Rev VC $.90 $.70

b. Profit = Rev x Q (FC + VC x Q)

1. P61,000 = $.90(61,000) [$9,200 + $.70(61,000)] = $3,000
2. P87,000 = $.90(87,000) [$9,200 + $.70(87,000)] = $8,200
Solutions (continued)

c. Q =

Specified profit + FC $16,000 + 9,200 / month

=
= 126,000 units.
Rev VC
$.90 / unit $.70 / unit

d. Total Revenue = Rev x Q, so Q =

Total Revenue
$23,000
=
= 25,556 units
R
$.90 / unit

e.

$100,000

TR = $90,000 @ Q = 100,000 units

TC = $79,200 @ Q = 100,000 units

TR
TC

Cost
$50,000

$9,200
0
Volume
(units)

100,000

1.

4.

FC
A: $40,000

Rev
$15/unit

VC
$10/unit

B: $30,000

$15/unit

$11/unit

a. Q BEP =

FC
Rev VC

Q BEP ,A =

$40,000
= 8,000 units
$15 / unit $10 / unit

Q BEP , B =

$30,000
= 7,500 units
$15 / unit $11 / unit

b. Profit = Q(Rev VC) FC

[As Profit]
[Bs Profit]
Q($15 $10) $40,000 = Q($16 $12) $30,000
Solving, Q = 10,000 units
c. PA = 12,000($15 $10) $40,000 = $20,000 [A is higher]
PB = 12,000($16 $12) $30,000 = $18,000
5.

Demand = 30,000 = Q
FC = $25,000
VC = $.37/pen
a. Rev = $1.00/pen

Solutions (continued)
Q BEP =

FC
$25,000
=
= 39,683 units
Rev VC $1.00 $.37

b. specified profit = $15,000

Q=

specified profit + FC $15,000 + $25,000

=
= 30,000
Rev VC
Rev $.37 / unit

Solving for Rev: Rev = $1.71 [rounded up]

a. Cost for Plan A: $20 + $.45(120) + $.20(40) = $82

Cost for Plan B: $20 + $.55(120) + $.15(40) = $92
Cost for Plan C: $20 + $80 = $100
b.
Plan B

$140
Weekly cost

6.

Plan A

$120
Plan C

$100
$80
$60
$40
$20
0

200

300

Minutes of daytime calls

c. Plan A is optimal for zero to less than 178 minutes. Plan C is optimal from 178 minutes or
more. Plan B is never optimal.
d. A: $20 + $.45D + $.20E
B: $20 + $.55D + $.15E
Setting these equal and solving, D = 1/2 E. Thus, if E = 100 minutes, then D = 50 minutes.
Hence, for 1/3 daytime minutes, the agent would be indifferent between the two plans.

Solutions (continued)
7.

Source

FC

VC

TC

Process A

$160,000

$5

160,000 + 5Q

Process B

190,000

190,000 + 4Q

7Q

Vendor
Answer:

For Q less than 63,333, the total cost is less for Vendor.
For larger quantities, Process B is better.
BEP: 7Q = 190,000 + 4Q; Q = 63,333

Cost ($000)
A

500

400
300
200
Vendor
100

10

0
20

30

40

50

60

70

80

Q(000)

8.

Source

FC

VC

Internal 1

$200,000

$17

Internal 2

240,000

14

Vendor A

20 up to 30,000 units

Vendor B

22 for 1 to 1,000; 18 each if larger amount

Vendor C

21 for 1 to 1,000; 19 each for additional units.

a.

TC for 10,000 units

Int. 1: 200,000 + 17(10,000) = $370,000

TC for 20,000 units

$200,000 + $17(20,000) = $540,000

Int. 2: 240,000 + 14(10,000) = $380,000

$240,000 + $14(20,000) = $520,000

Vend A

20(10,000) = $200,000

$20(20,000) = $400,000
$18(20,000) = $360,000 (opt.)

Vend B

18(10,000) = $180,000 (opt.) $ 21,000 + $19(19,000) = $382,000

Vend C 21,000 + 19( 9,000) = $192,000

Solutions (continued)
b.

Range
1 to 999
1,000 to 59,999
60,000 or more

9.

B @ $18 each
Int. 2 @ $14 each + 240,000

Actual output will be 225 per day per cell;

240 Working days/year
Projected annual demand = 150,000
Annual capacity per cell = 225 units/day x 240 days/year = 54,000
Cells :

10.

Optimal Choice
A @ $20 each

150,000
= 2.78, round to 3 cells
54,000

a. Given: 10 hrs. or 600 min. of operating time per day.

250 days x 600 min. = 150,000 min. per year operating time.
Total processing time by machine
Product
1

A
48,000

B
64,000

C
32,000

48,000

48,000

36,000

30,000

36,000

24,000

60,000

60,000

30,000

Total

186,000

208,000

122,000

NA =

186,000
=1.24 2 machine
150,000

NB =

208,000
=1.38 2 machine
150,000

NC =

122,000
=.81 1 machine
150,000

You would have to buy two A machines at a total cost of $80,000, or two B
machines at a total cost of $60,000, or one C machine at $80,000.

Solutions (continued)

b. Total cost for machine A

186,000 min 60 = 3,100 hrs. x $10 = $31,000 + $80,000 = $111,000
208,000 60 = 3,466.67 hrs. x $11 = $38,133 + $60,000 = $98,133
122,000 60 = 2,033.33 hrs. x $12 = $24,400 + $80,000 = $104,400
11.

R = $45 per customer, VC = $20 per customer

FC

Range

Q BEP =

FC
R VC

One machine
$2,000
1 to 100
80 = 2000 / (45 20)
Two machines
3,800
101 to 200
152 = 3800 / (45 20)
b. Since BEP for 1 machine is 82 and 82 < 90 and BEP for 2 machines is 153 > 120, we
should purchase 1 machine, because even at the upper limit (120) we have not
reached the break-even point associated with two machines.
12.

R = $5.95, VC = $3. One line would have a fixed cost of $20 (6,000 300) per hour and
two lines would have a fixed cost of $35 (10,500 300) per hour.
Volume
14

No. of lines
1

Profit
$21.30 = 14 (5.95 3) 20

15

24.25 = 15 (5.95 3) 20

16

12.20 = 16 (5.95 3) 35

17

15.15 = 17 (5.95 3) 35

18

18.10 = 18 (5.95 3) 35

Choose one line. Assumption: Little or negligible cost of manufacturing.