Posted: February 27th, 2021
Question 1. ABC Manufacturing is unsure of the ideal price to quote for one of their products, a pump. ABC’s president has asked you to do a break even analysis for the pump, and to recommend the optimal price. The fixed costs (FC) associated with manufacturing this particular product are $100,000, and the variable costs (VC) are $50 per unit. ABC’s president is considering a selling price (P) for this product of $100. The president wants to know how many units have to be sold in order to break even (BEU).
Question 2. ABC’s president believes there is substantial competition for this type of pump, and that price is a significant factor in potential customer’s purchase decision. He estimates that the company will sell 3,600 pumps (unit volume or UV) if they are priced at $100, and will sell 2,900 pumps if they are priced at $110. He wants to know what contribution to profit (CP) would result from each of those two selling prices, and thus which is the better price.
Question 3. Another issue ABC is facing is reliability of their products, in part because they are manufacturing increasingly complex products. One such product is designed and manufactured with five different subassemblies combined in series. It was determined through testing that those subassemblies have reliabilities, which are R1, R2, R3, R4, and R5; of .997, .998, .995, .999, and .990, respectively (refer to the Question 3 Flowchart). ABC’s president has asked you what the reliability of the overall product (RP) is, given those subassembly reliabilities utilized in series.
ABC’s president has also asked you what the overall reliability of a different product (RP) is. That product has four subcomponents (SC1, SC2, SC3, and SC4). The components are organized as SC1, followed by SC2 in parallel with SC3, which are then both followed by SC4 (refer to the Question 4 Diagram). Their respective reliabilities are SC1R=.97, SC2R=.98, SC3R=.95, and SC4R=.93.
ABC Manufacturing is also concerned about the quality of its manufacturing processes. One of the products the company sells is a bottle of liquid lubricant associated with the pump product line. ABC’s president is familiar with the operations management concept of control limits (determining an upper and lower numerical threshold such that a process is considered in control as long as it stays within those limits).
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