A job shop receives an order for high precision formed parts. The cost of produc

Question

A job shop receives an order for high precision formed parts. The cost of producing each part is approximately $20,000. The customer requires that either 4 or 5 good parts be supplied. Each good part sold will yield $30,000. However, if fewer than 4 good parts are produced, none will be purchased. The probability of an individual part being acceptable to the customer is .80. 1/ Determine the optimum batch production quantity given that the job shop has agreed to supply the formed parts. 2/ Is the situation a profitable one for the job shop? I 3/ If not, how must the selling price be changed for the expected profit to be positive? Operations Management

Explanation / Answer

he customer requires that exactly 4 good castings be supplied. The customer will pay $30,000 for each good casting. ======================================================================== Cost of producing each casting is estimated to be $20,000. ===================================================================================================== probability of an individual casting being acceptable to the customer is .80 =================================================================================================== expected profit = sales -cost ================================================================================ expected profit = 30000*x*0.8 - 20000*x where x>=4 ================================================================================================ =20000*4*0.8 - 15000*4 =4000 =============================================================================================== for x=5 expected profit = = 5000 lot size =5 since profit earned is best ========================================================================================== expected profit = $5000 ====================================================================================================

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.