Assignment 2
Submit your solutions to the following problems. Write your solutions clearly and neatly.
1. Woodland Furniture is a small manufacturer of kitchen chairs with 5 workers. The cost of labor is $15 per hour and workers work 40 hours in a week. The overhead cost is assumed to be 1.2 times the weekly total labor cost. Material cost is $10 per chair. Last year, on average, Woodland produced 250 chairs per week, and of the items produced 16% were defective. The non-defective chairs were sold for $100 each and the defective chairs were sold for an average of $40 per chair. Woodland recently installed a new assembly process, including a new sander and polisher. With this new system, production has increased to 280 chairs per week and the defective rate decreased to 10%. Assume the same sale prices for defective and non-defective chairs. a) Calculate the multifactor productivity for the old and new production systems and compute the percentage change in multifactor productivity between the two systems. b) Calculate the labor productivity for the old and new production systems and compute the percentage change in labor productivity between the two systems.
2. Richard Winchester, owner of Winchester Products, is considering whether to produce a new product. He has considered the operations requirements for the product as well as the market potential. Richard estimates the fixed costs per year to be $30,000 and variable cost for each unit produced to be approximately $25. a) If Richard sells the product at a price of $35, how many units of product does he have to produce and sell in order to break even? b) Richard forecasts sales of 4,800 units if the selling price is set at $35, and 6,500 units if the selling price is set at $32. Which pricing strategy would you recommend to Richard? Why? Show all your work to get credit! Solve both graphically and Algebraically
3. Submit a solution
A firm that plans to expand its product line must decide whether to build a small, medium, or large production facility. A consultant's report indicates a 0.75 probability that demand will high and a 0.25 probability that demand will be low. If the firm builds a small facility and demand is low, the firm is expected to earn $40 million. If demand turns out to be high, the firm can either subcontract and earn $46 million or expand the facility to earn $48 million.
If the firm builds a medium-size facility and demand is low, then the firm is expected to earn $22 million. If demand turns out to be high, the firm can either do nothing and earn $50 million or can expand the facility to earn $60 million. If the firm builds a large facility and demand is low, the firm is expected to lose an estimated value of $20 million. If demand is high, earnings are expected to be $70 million.
a) Draw a complete decision tree for this problem. Clearly present the decision and event nodes, the associated probabilities, and the payoffs.
b) What should the management do to achieve the highest expected payof