A manufacturer has two options for buying a new production line to produce up to 100,000 products per year: A dedicated line that costs $50 million or an RMS that costs $60 million. The product is sold at a profit of $150 per product. Solve for the three scenarios described below, and draw a graph of profit (or loss) for each case and for each system during 6 years of operation. When does the higher investment in the reconfigurable system become economically justified?

(a) The production is 100,000 products per year, for 6 years, as was expected.

(b) After 2 years of operation the market demand grows to 150,000 units per year. The dedicated line is not scalable and cannot meet the additional product demand. For an additional investment of $15 million, the reconfigurable system can supply the new demand for the next 4 years.

(c) After 2 years of operating the original system, an unpredicted model change is needed (again, requiring 100,000 units per year for the new model; the old one is discontinued). A new dedicated line could be built to produce the new product, or the reconfigurable system can be reconfigured for an additional cost of $10 million, and produce the new model for 4 years.

Answer rating: 100% (QA)

a The dedicated line will have a profit of 15 million per year while the RMS will have a profit of 1... View the full answer