**Problem 5-8**

A manager is trying to decide whether to purchase a certain part or to have it produced internally. Internal production could use either of two processes. One would entail a variable cost of $17 per unit and an annual fixed cost of $200,000; the other would entail a variable cost of $14 per unit and an annual fixed cost of $240,000. Three vendors are willing to provide the part. Vendor A has a price of $20 per unit for any volume up to its maximum capacity of 30,000 units. Vendor B has a price of $22 per unit for demand less than 1,000 units, and $18 per unit for larger quantities. Vendor C offers a price of $21 per unit for the first 1,000 units, and $19 per unit for additional units. |

a. |
If the manager anticipates an annual volume of 10,000 units, which alternative would be best from a cost standpoint? For 20,000 units, which alternative would be best? (Omit the “$” sign in your response.) |

TC for 10,000 units | TC for 20,000 units | ||

Int. 1: | $ | Int. 1: | $ |

Int. 2: | $ | Int. 2: | $ |

Vend A | $ | Vend A | $ |

Vend B | $ | Vend B | $ |

Vend C | $ | Vend C | $ |

is the best from a cost standpoint. | is the best from a cost standpoint. | ||

b. |
Determine the range for which each alternative is best. |

Range | Optimal Choice |

1 to 999 | |

1,000 to 59,999 | |

60,000 or more | |

**Problem 5-9**

A company manufactures a product using machine cells. Each cell has a design capacity of 250 units per day and an effective capacity of 230 units per day. At present, actual output averages 200 units per cell, but the manager estimates that productivity improvements soon will increase output to 222 units per day. Annual demand is currently 60,000 units. It is forecasted that within two years, annual demand will triple. How many cells should the company plan to acquire to satisfy predicted demand under these conditions? Assume that no cells currently exist. Assume 245 workdays per year. (Round up your answer to the next whole number.) |

Cells |

**Problem 5-11**

A manager must decide which type of machine to buy, A, B, or C. Machine costs (per individual machine) are as follows: |

Machine | Cost | |

A | $ | 50,000 |

B | $ | 40,000 |

C | $ | 70,000 |

Product forecasts and processing times on the machines are as follows: |

PROCCESSING TIME PER UNIT (minutes) | |||||

Product | Annual Demand | A | B | C | |

1 | 12,000 | 2 | 1 | 2 | |

2 | 21,000 | 2 | 6 | 3 | |

3 | 11,000 | 2 | 4 | 5 | |

4 | 25,000 | 3 | 5 | 2 | |

a. |
Assume that only purchasing costs are being considered. Compute the total processing time required for each machine type to meet demand, how many of each machine type would be needed, and the resulting total purchasing cost for each machine type. The machines will operate 10 hours a day, 230 days a year. (Enter total processing times as whole numbers. Round up machine quantities to the next higher whole number. Compute total purchasing costs using these rounded machine quantities. Enter the resulting total purchasing cost as a whole number. Omit the “$” sign.) |

Total processing time in minutes per machine: | |

A | |

B | |

C | |

Number of each machine needed and total purchasing cost | ||

A | $ | |

B | $ | |

C | $ | |

b. |
Consider this additional information: The machines differ in terms of hourly operating costs: The A machines have an hourly operating cost of $13 each, B machines have an hourly operating cost of $15 each, and C machines have an hourly operating cost of $15 each. What would be the total cost associated with each machine option, including both the initial purchasing cost and the annual operating cost incurred to satisfy demand? (Use rounded machine quantities from Part a. Do not round any other intermediate calculations. Round your final answers to the nearest whole number. Omit the “$” sign.) |

Total cost for each machine | |

A | |

B | |

C |

Problem 5-13

The manager of a car wash must decide whether to have one or two wash lines. One line will mean a fixed cost of $5,700 a month, and two lines will mean a fixed cost of $9,690 a month. Each line would be able to process 15 cars an hour. Variable costs will be $3 per car, and revenue will be $5.95 per car. The manager projects an average demand of between 14 and 18 cars an hour. Would you recommend one or two lines? The car wash is open 260 hours a month. |

Choose line. |

**Problem 5-14**

The following diagram shows a 4-step process that begins with Operation 1 and ends with Operation 4. The rates shown in each box represent the effective capacity of that operation. |

Determine the capacity of this process. |

Capacity | /hr |

0 Problem 5-15

The following diagram describes a process that consists of eight separate operations, with sequential relationships and capacities (units per hour) as shown. |

a. |
What is the current capacity of the entire process? |

Capacity | units per hour |

b-1. |
If you could increase the capacity of only two operations through process improvement efforts, which two operations would you select, how much additional capacity would you strive for in each of those operations? (Enter your answers as whole numbers. Enter the lower operation number in the TOP answer box and the higher operation number in the BOTTOM answer box.) |