Production Management Assignment Saturday, 8:00AM – 11:00PM, Rm 218 Ismael C. Pangilinan Carl Cesar H. Bibat M.S. Management Engineering PROCESS DESIGN EXERCISES 1. Borges Machine Shop, Inc, has a one year contract for the production of 200,000 gear housings for a new off-road vehicle. Owner Luis Borges hopes the contract will be extended and the volume increased next year. Borges has developed costs for the three alternatives. These are general-purpose equipment(GPE), flexible manufacturing system (FMS), and expensive , but efficient , dedicated machine(DM). the cost data follow; GPE FMS DM Annual contract units 200,000 200,000 200,000 Annual fixed cost $100,000 $200,000 $500,000 Variable cost/unit $15.00 $14.00 $13.00 Which process is best for this contract? Solution to Problem #1: Compare the Total Cost that each alternative may incur: Total Cost (TC) = (TC) = Fixed Cost (FC) + [Variable Cost (VC) x Annual Contract Units (ACU)] For GPE: TCGPE = $100,000 + ($15.00 x 200,000) = $3,100,000 For FMS: TCFMS = $200,000 + ($14.00 x 200,000) = $3,000,000 For DM: TCDM = $500,000 + ($13.00 x 200,000) = $3,100,000
Answer: By comparing the alternatives, the lowest cost of the three alternatives is Flexible Manufacturing System with System with only $3,000,000. $3,000,000 .
2. Stan company is considering producing a gear assembly that it now purchases from SLT Supply Inc. SLT charges $4 per unit with a minimum order of 3,000 units. Stan estimates that it will cost $15,000 to set up the process and then $1.82 per unit for labor and materials. a. Draw a graph illustrating the point of indifference(crossover indifference(crossover). ). b. Determine the number of units where either choice has the same cost. A.
Stan Company
15000
Variable Cost per unit 1.82
SLT Supply Inc.
0
4
Fixed Cost
Units 0
Stan Company TC 15000
SLT Supply Inc TC 0
1000 2000
16820 18640
0 0
3000 4000
20460 22280
12000 16000
5000
24100
20000
6000
25920
24000
7000
27740
28000
8000
29560
32000
9000
31380
36000
10000
33200
40000
Comparison of Total Cost 45000 40000 35000 $ , t s o C l a t o T
30000 25000 20000 15000
Crossover point
10000
6881 units
5000 0 0
2000
4000
6000
8000
10000
No. of Units Stan Company
SLT Supply Inc
B. No. of Units where either choice has the same cost. $15,000 + $1.82x = $4x $15,000 = $2.18x X = 6,880.73 units X = 6881 units
12000
