We want to evaluate the various levels of automation for quality control inspection of production.
Option 1: Manual - assign a number of employees along the conveyor belt to manually inspect and remove defective products.
Option 2: Semi-automation - use fewer employees to inspect with less checkpoints required. Machine automatically removes defective products.
Option 3: Full automation - purchase a state-of-the-art, fully automated machine that uses video cameras, a computer workstation, and small bursts of air. This new machine can automatically inspect and remove defective products.
Initial costs of the options vary substantially:
|
|
Option 1
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Option 2
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Option 3
|
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Annual Fixed Costs
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$2,500
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$4,500
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$27,000
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Variable Costs (per
thousand pounds of product)
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$100
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$80
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$20
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Required:
Question 1. Based on annual cost, determine the annual volume (in thousands of pounds) at which the company would be indifferent between Options 1 and 2; between Options 2 and 3; and between Options 1 and 3.
Question 2. Create a table showing the total annual cost of each option if annual volume (in thousands of pounds) is 50, 200, 350, and 500. Circle the lowest cost at each annual volume.
Question 3. Based only on annual cost, for what range of annual volumes would each option be preferred?
Question 4. What factors other than annual cost should be considered when making the decision on the appropriate level of automation in which to invest?