Problem rageding sprocket manufacturing

Assignment Help Accounting Basics
Reference no: EM131010089

Sprocket manufacturing

The manager of this production firm is faced with a potential problem: shortages in the supply of a vital gear sprocket. He is considering the development of an in-house capability to make the sprockets, knowing that the firm needs 35,000 such sprockets each year. If the firm elects to make the sprockets internally, then it must select one of the three possible production processes. Each has different costs, as shown in Table 10.17. Adopting a manual process may lead to union problems. The manager estimates the probability of these problems as 25%, and knows that if they do occur, then the variable cost will increase by $0.50 per sprocket. Further, if the semi-automatic or fully automatic option is selected, then additional training of personnel will be required. The amount and therefore the cost of training are uncertain. For the semi-automatic process, the fixed cost of basic training will add $15,000. However, there is a 20% chance the workers will need extra training at a cost of $5,000. For the fully automatic process, the fixed cost of basic training is $16,000, but there is a 30% chance they will need advanced training that will add $10,000 to the fixed cost. The firm has the option of purchasing the sprockets from their external supplier at a cost of $2.90 per sprocket; however, the manager estimates that there is a 40% chance that this supplier will fail to develop the process in a timely manner. If he does fail, then one of the three in-house processes must be developed; however, time pressure would increase the fixed cost of each process by 50%.

a. Construct the appropriate decision tree using PrecisionTree software.

b. What is the optimal strategy, and what is the final expected total payoff?

c. If the manager were to develop an in-house facility, which production process should he select and why?

Cost data for sprocket manufacturing case.

Production Process

Fixed Cost/years$

Variable Cost/Units $

Manual

20000

2.5

Semiautomatic

50000

1.5

Fully automatic

80000

1

Reference no: EM131010089

Questions Cloud

Problem regarding the business in making some decision : What are three types of gaps that exist, indicating that research may be needed to assist a business in making some decision?
Problem regarding the story of failure : Read chapter 6 and the case study, A Story of Failure: Golden Gate Airlines on page 129 and answer the following questions:
Draw a graph that displays the distribution : Calculate the descriptive statistics from the data and display in a table. Be sure to comment on the central tendency,variability (both absolute and relative)as well as shape for each variable - Draw a graph that displays the distribution of the qu..
Divergences between daoist and pre-socratic ideas : Look for convergences and divergences between Daoist and pre-Socratic ideas with reference to Heidegger's phenomenology and Derrida's deconstruction
Problem rageding sprocket manufacturing : The manager of this production firm is faced with a potential problem: shortages in the supply of a vital gear sprocket. He is considering the development of an in-house capability to make the sprockets, knowing that the firm needs 35,000 such spr..
The stock of flop industries is trading : The stock of flop industries is trading at $43. you feel the stock price will decline, so you short 700 shares at an initial margin of 70 percent. if the maintenance margin is 40 percent, at what share price will you receive a margin call?
What is monthly amount they will receive during retirement : Kwame and Omarosa, both age 40, have $80,000 of combined retirement assets. They both expect to retire at the age of 65 with a life expectancy of 100 years old. They expect to earn 10% on the assets within their retirement accounts before retirement ..
Write a summary of jesus christs life : Write a summary of Jesus Christs life and then compare the similaritiea and differences in his teachings to that of Buddh has to be 750 words
What is the greatest rate of change of the given function : What is the rate of change of this function at the point (3,2,4) in the direction towards (1,4,3)? What is the greatest rate of change of this function at the point (3,2,4)?

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  Evaluate performance by accrual basis

How does the use of the accrual basis help organizations to better evaluate their performance over time? What protection could financial statements generated under the accrual basis have to a potential donor in the organization?

  Balance sheet preparation

Problem: Balance Sheet preparation: The following is a December 31, 2016, post-closing trial balance for Almway Corporation.

  Prepare the stockholders equity section of the balance sheet

Shelby Corporation was organized in January to operate an air-conditioning sales and service business. The charter issued by the state authorized the following capital stock: Prepare the stockholders’ equity section of the balance sheet at December 3..

  During its most recent fiscal year simon enterprises sold

during its most recent fiscal year simon enterprises sold 290000 electric screwdrivers at a price of 17.70 each. fixed

  Federal income taxes for the employee

Which form is used to report FICA taxes for the employer and employee, and also federal income taxes for the employee?

  Financial statements are a product of the accounting cycle

financial statements are a product of the accounting cycle. name two different companies a manufacturing company and a

  Briefly describe three ways to connect to the internet

Briefly describe three ways to connect to the Internet. What are the advantages and disadvantages of each approach?

  Cooprate tax return problem

CORPORATE TAX RETURN PROBLEM

  Janes corporation recorded operating data for its cheap

janes corporation recorded operating data for its cheap division for the year. janes requires its return to be 10.sales

  Calculating company return on assets

Calculate the company's return on assets for the year 2000.

  Annual salary from moveable feast

Annual salary from Moveable Feast

  Tiger company recently exchanged an old truck which cost

tiger company recently exchanged an old truck which cost 54000 and was one-third depreciated and paid 35000 cash for a

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd