Determine the optimum batch production quantity

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Reference no: EM13107050

A job shop receives an order for high precision formed parts. The cost of producing each part is approximately $20,000. The customer requires that either 4 or 5 good parts be supplied. Each good part sold will yield $30,000. However, if fewer than 4 good parts are produced, none will be purchased. The probability of an individual part being acceptable to the customer is .80. Determine the optimum batch production quantity given that the job shop has agreed to supply the formed parts. Is the situation a profitable one for the job shop? If not, how must the selling price be changed for the expected profit to be positive?

Reference no: EM13107050

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