Suppose that you were recently hired as the operations manager for ABC
Manufacturing, a small manufacturing company founded two years ago. The company has been reasonably successful since it was founded, but has recently been experiencing several production issues. You were hired to recommend and implement improvements to get the company back on track.
Problems
Complete the following problems based on the ABC Manufacturing scenario above. For each question, briefly describe the operations management issue and describe how you would approach an analysis, then provide answers to the algebraic equations.
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).
Analyze this operations management issue.
Provide the algebraic equation (using BEU, FC, P, and VC as variables) for the breakeven analysis.
Calculate and provide the numeric breakeven value.
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