Chapter 4 questions

2. Gabriela Manufacturing was able to find a new supplier that would provide the item for $1.80 per unit with an annual fixed cost of $200,000. Should Gabriela Manufacturing insource or outsource the item?

4. Fast Finish, Inc. (FFI) has made a technological breakthrough in snow board finish application. FFI will apply the finish for $0.23 per unit in variable costs plus a fixed annual cost of $230,000. Use the cost and demand information given in Problem 3 for Downhill Boards to evaluate this proposal.

             (a) What will it cost Downhill Boards to outsource the finishing process?

             (b) At what demand level does it make sense economically to outsource the finishing process?

             (c) What additional factors should be considered when making this outsourcing decision?

6. Cal’s Carpentry is considering outsourcing its accounts receivable function. Currently, Cal employs two full-time clerks and one part-time clerk to manage accounts receivable. Each fulltime clerk has an annual salary of $36,000 plus fringe benefits costing 30 percent of their salary. The part-time clerk makes $18,000 per year but has no fringe benefits. Total salary plus fringe cost is $111,600. Cal estimates that each account receivable incurs a $10 variable cost. The Small Business Accounts Receivables Group (SBARG) specializes in handling accounts receivable for small- to medium-size companies. Doris Roberts from SBARG has offered to do the accounts receivable for Cal’s Carpentry at a fixed cost of $75,000 per year plus $30 per account receivable. Next year, Cal expects to have 2000 accounts receivable.

             (a) Calculate the cost for Cal’s Carpentry to continue doing accounts receivable in-house.

             (b) Calculate the cost for Cal’s Carpentry to use SBARG to handle the accounts receivable.

             (c) If the fixed annual cost offered by SBARG is nonnegotiable but it is willing to negotiate the variable cost, what variable cost from SBARG would make Cal indifferent to the two options?

             (d) What other alternatives might Cal consider in terms of his current staffing for accounts receivable?

          (e) What additional criteria should Cal consider before outsourcing the accounts receivable?

Chapter 5

4. An engine system consists of three main components in a series, all having the same reliability. Determine the level of reliability required for each of the components if the engine is to have a reliability of 0.998.

8. A university Web server has five main components, each with the same reliability. All five components must work for the server to function as intended. If the university wants to have a 95 percent reliability, what must be the reliability of each of the components?

10. The following system of components has been proposed for a new product. Determine the reliability of the system.

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