Problem 1: What are some capacity measures for each of the following? Please name at least three for each.
(1) University
(2) Hospital
Problem 2: A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be $40,000 for A and $30,000 for B; variable costs per unit would be $10 for A and $11 for B; and revenue per unit would be $15.
(1) Determine each alternative’s break-even point in units.
(2) At what volume of output would the two alternatives yield the same profit?
(3) If expected annual demand is 12,000 units, which alternative would yield the higher profit?
Problem 3: The following diagram describes a process that consists of eight separate operations, with sequential relationships and capacities (units per hour) as shown. Two types of input, A and B, are needed. A and B are processed by Operations 1, 2, and 3 and Operations 4, 5, and 6, respectively, before they are combined and processed by Operations 7 and 8.
(1) What is the current capacity of the entire process?
(2) 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, and what would the resulting capacity of the entire process be?
Problem 4: Ski Boards, Inc., wants to enter the market quickly with a new finish on its ski boards. It has three choices: (A) Refurbish the old equipment at a cost of $800, (B) make major modifications at a cost of $1,100, or (C) purchase new equipment at a net cost of $1,800. If the firm chooses to refurbish the equipment, materials and labor will be $1.10 per board. If it chooses to make modifications, materials and labor will be $0.70 per board. If it buys new equipment, variable costs are estimated to be $0.40 per board.
(1) Calculate the crossover points of the three alternatives.
(2) Graph the three total cost lines on the same chart.
(3) Which alternative should Ski Boards, Inc., choose if it thinks it can sell more than 3,000 boards?
(4) Which alternative should the firm use if it thinks the market for boards will be between 1,000 and 2,000?