A manager of Splitter Manufacturing that produces computer hard drives is planning to lease a new automated inspection system. The manager believes the new system will be more accurate than the current manual inspection process. The firm has had problems with hard drive defects in the past and the automated system should help catch these defects before the drives are shipped to the final assembly manufacturer. Respond to all questions based on the data provided. Current Manual Inspection System Annual fixed cost = $45,000 Inspection variable cost per unit = $15 per unit New Automated Inspection System Annual fixed cost = $165,000 Inspection variable cost per unit = $0.65 per unit a. Suppose annual demand is 7,000 units. Should the firm lease the new inspection system? Why or why not? (Your “why” should not be “the spreadsheet output indicated….”) b. Assume you are trying to change (or negotiate) situational factors to make a final decision, what would it take to change your decision from the one you chose in part “a”? c. If your production volume increased would it change your decision in part “a”? If so, what production volume would it require to make you change your decision?
- A manager of Splitter Manufacturing that produces computer hard drives is planning to lease a new automated inspection system. The manager believes the new system will be more accurate than the current manual inspection process. The firm has had problems with hard drive defects in the past and the automated system should help catch these defects before the drives are shipped to the final assembly manufacturer. Respond to all questions based on the data provided.
Current Manual Inspection System
Annual fixed cost = $45,000
Inspection variable cost per unit = $15 per unit
New Automated Inspection System
Annual fixed cost = $165,000
Inspection variable cost per unit = $0.65 per unit
a. Suppose annual demand is 7,000 units. Should the firm lease the new inspection system? Why or why not? (Your “why” should not be “the spreadsheet output indicated….”)
b. Assume you are trying to change (or negotiate) situational factors to make a final decision, what would it take to change your decision from the one you chose in part “a”?
c. If your production volume increased would it change your decision in part “a”? If so, what production volume would it require to make you change your decision?
2. In Problem 1, assume the cost factors given in “current manual system” have not changed. A marketing representative from Hi-Quality, a firm that specializes in providing manual inspection processes for other firms, approached Splitter Manufacturing and offered to inspect parts for $18.25 each with no fixed cost. Hi-Quality assured Splitter Manufacturing the accuracy and quality of their manual inspections would equal the automated inspection system. Demand for the upcoming year is
a. Should the manufacturer accept the offer? Why or why not?
b. What are some factors that would have to change for the manufacturer to choose the
alternate decision?
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