Company XYZ has production line with a max. capacity (Actual O/P) of 230,000 ton. During 2017...

 

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Company XYZ has production line with a max. capacity (Actual O/P) of 230,000 ton. During 2017 and 2018, the capacity of the factory barely covered the market demand. Thus, it seems critical to rethink their capacity for 2019. During the meeting, the operations manager proposed two capacity alternatives to increase their capacity. The first alternative is to buy a new production line. The second alternative is to toll manufacture with a third party. The following table indicates the fixed and variable cost of each alternative: Buy a new line Toll manufacture $ 100000 None $ 150/ton Fixed cost Variable cost $ 900/ton 1. You are required to assess the two proposals, regarding the toll manufacture/buy alternative. 2. If the volume changed, at what volume would the manager be indifferent between buying and toll manuf.? Later, company XYZ is considering three capacity alternatives as follows: A C FC 100,000 80,000 VC/ unit $22 $30 Revenue is expected to be $50 per unit. 1. Which alternative has the lowest total cost? B 120,000 $ 20 2. Which alternative has the lowest break-even quantity? 3. Which alternative will produce the highest profits for an annual output of 10,000 units? 4. Which alternative would require the lowest volume of output to generate an annual profit of $50,000? Company XYZ has production line with a max. capacity (Actual O/P) of 230,000 ton. During 2017 and 2018, the capacity of the factory barely covered the market demand. Thus, it seems critical to rethink their capacity for 2019. During the meeting, the operations manager proposed two capacity alternatives to increase their capacity. The first alternative is to buy a new production line. The second alternative is to toll manufacture with a third party. The following table indicates the fixed and variable cost of each alternative: Buy a new line Toll manufacture $ 100000 None $ 150/ton Fixed cost Variable cost $ 900/ton 1. You are required to assess the two proposals, regarding the toll manufacture/buy alternative. 2. If the volume changed, at what volume would the manager be indifferent between buying and toll manuf.? Later, company XYZ is considering three capacity alternatives as follows: A C FC 100,000 80,000 VC/ unit $22 $30 Revenue is expected to be $50 per unit. 1. Which alternative has the lowest total cost? B 120,000 $ 20 2. Which alternative has the lowest break-even quantity? 3. Which alternative will produce the highest profits for an annual output of 10,000 units? 4. Which alternative would require the lowest volume of output to generate an annual profit of $50,000?

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Assessing the Toll Manufacture vs Buy Alternative To assess the two proposals we need to calculate the total cost for each alternative and compare them For buying a new production line Total Cost Fixed Cost Buy Variable Cost Buy Actual Output For toll manufacturing with a third party Total Cost Variable Cost Toll Manufacture Actual Output Lets assume the actual output is represented by Q in tons Total Cost Buy 100000 150 Q Total Cost Toll Manufacture 900 Q Now lets compare the ... View the full answer