Question 1 Part a).

Pent Glazing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs for proposal A are $50 000, and for proposal B, $70 000. The variable cost for A is $12.00, and for B, $10.00. The revenue generated by each unit is $20.00.

1. What is the break-even point in units for proposal A?

2. What is the break-even point in units for proposal B?

Using the data above

3. What is the break-even point in dollars for proposal A if you add $10 000 installation to the fixed cost?

4. What is the break-even point in dollars for proposal B if you add $10 000 installation to the fixed cost?

Part b).

Chrystab Products Materials manager, Chris White, must determine whether to make or buy a new semiconductor for the wrist TV that the firm is about to produce. One million units are expected to be produced over the life cycle. If the product is made, start-up and production costs of the make decision total $1 million, with a probability of 0.4 that the product will be satisfactory and a 0.6 probability that it will not. If the product is not satisfactory, the firm will have to reevaluate the decision. If the decision is reevaluated, the choice will be whether to spend another $1 million to redesign the semiconductor or to purchase. Likelihood of success the second time that the make decision is made is 0.9. If the second make decision also fails, the firm must purchase. Regardless of when the purchase takes place, Chriss best judgment of cost is that Chrystab will pay $0.50 for each purchased semiconductor plus $1 million in vendor development cost.

1. Assuming that Chrystab must have the semiconductor (stopping or doing without is not a viable option), what is the best decision?

2. What criteria did you use to make this decision?

3. What is the worst that can happen to Chrystab as a result of this particular decision?

4. What is the best that can happen?

Question 2:

Delcan Engineering designs and constructs air conditioning and heating systems for hospitals and clinics. Currently, the companys staff is overloaded with design work. There is a major design project due in eight weeks. The penalty for completing the design late is $14,000 per week since any delay will cause the facility to open later than anticipated and cost the client significant revenue. If the company uses its inside engineers to complete the design, it will have to pay them overtime for all work. Delcan has estimated that it will cost $12,000 per week (wages and overhead), including late weeks, to have company engineers complete the design. Delcan is also considering having an outside engineering firm do the design. A bid of $92,000 has been received for the completed design. Yet another option for completing the design is to conduct a joint design by having a third engineering company complete all electromechanical components of the design at a cost of $56,000. Delcan would then complete the rest of the design and control systems at an estimated cost of $30,000. Delcan has estimated the following probabilities of completing the project within various time frames when using each of the three options. Those estimates are shown in Table 1:

Table 1 showing Delcans Estimates:

	Probability of Completing the Design
Option	On Time	One-Week Late	Two-Weeks Late	Three Weeks Late
Internal Engineers	0.4	0.5	0.1	-
External Engineers	0.2	0.4	0.3	0.1
Joint Design	0.1	0.3	0.4	0.2

What is the best decision based on an expected monetary value criterion? (Note: You want the lowest EMV because we are dealing with costs in this problem.)