Can someone help me with part B of this problem?: Verasource Microprocessor Corporation sells 200 computer chips a month for $1,500 each. variable costs are $1,500,000. Fixed costs are $500,000. there's a defect rate of 8%. What is the hidden cost to the company of making this rate of defectives instead of 2,000 good chips each month? Suppose a six sigma effort can reduce the defects to a six sigma level. what is the impact on profitability

Can someone help me with part B of this problem?: Verasource Microprocessor Corporation sells 200 computer chips a month for $1,500 each. variable costs are $1,500,000. Fixed costs are $500,000. there's a defect rate of 8%. What is the hidden cost to the company of making this rate of defectives instead of 2,000 good chips each month? Suppose a six sigma effort can reduce the defects to a six sigma level. what is the impact on profitability

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 5P: Hudson Corporation is considering three options for managing its data warehouse: continuing with its...

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The XYZ Manufacturing Company is evaluating options for spending on product quality and wants to find the optimal amount to spend on changing its processes to further prevent defects. Its engineers have developed the following estimates: 1. Defects The current defect rate is 10%. If it invests an additional $10 per unit in prevention costs, the defect rate will drop to 6%; spending $20 per unit on prevention drops the defect rate to 3%; spending $30 per unit drops the defect rate to 1.5%; and investing $40 per unit on prevention reduces the defect rate to 1%. 2. Inspection Inspection costs are $5 per unit. Inspection is successful at detecting 98% of defective units; the remaining 2% of defective products are sold and eventually returned for warranty repairs or replacement at no cost to the customer. 3. Internal failure costs are $400 per defective unit that is detected. 4. External failure costs are $1000 per unit returned. 5. Current production level is 1 million units. REQUIRED: A.…
InteliSystems needs 79,000 optical switches next year . By outsourcing them, InteliSystems can use its idle facilities to manufacture another product that will contribute $140,000 to operating income, but none of the fixed costs will be avoidable. Should InteliSystems make or buy the switches? Show your analysis based on the information in the table below for making 70,000 switches.
A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is six months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.20 and that of high demand to be 0.80. The after-tax NPV of the benefits from purchasing two machines together is $70,000 if demand is low and $170,000 if demand is high. If one machine is purchased and demand is low, the NPV is $100,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $100,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $120,000. What is the best decision and what is its expected payoff? Best decision is to buy nothing…
Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $120 per unit. Variable cost was $95 per unit and the fixed costs were $3,200,000 per month. Taizhong currently sells 140,000 units per month. Because of volatility in the precious metals market, the variable cost per unit has just gone up by $5, but the company does not believe it can pass the extra cost on to the customer. To offset higher variable costs, the production manager has developed a plan which will reduce fixed costs by 20%. By how much percentage will this affect net operating income?
2. A computer maker is considering improving its product. It currently produces a desktop computer at a marginal cost of $249, and the computer sells for $289. The improved version of its product would have a new marginal cost of $289 and would be priced at $359. What volume hurdle does this manufacturer face?
A manager is trying to decide whether to buy one machine or two. If only one machine is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales would be lost, however, because the lead time for delivery of this type of machine is 6 months. In addition, the cost per machine will be lower if both machines are purchased at the same time. The probability of low demand is estimated to be 0.30 and that of high demand to be 0.70. The after-tax NPV of the benefits from purchasing two machines together is $90,000 if demand is low and $170,000 if demand is high. If one machine is purchased and demand is low, the NPV is $120,000. If demand is high, the manager has three options: (1) doing nothing, which has an NPV of $120,000; (2) subcontracting, with an NPV of $140,000; and (3) buying the second machine, with an NPV of $130,000. a. Draw a decision tree for this problem. b. What is the best decision and what is its expected payoff?
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A bicycle manufacturer currently produces 360,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $268,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $56,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $20,100.If the company pays tax at a rate of 20% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…
A bicycle manufacturer currently produces 233,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.40 per chain. The necessary machinery would cost $224,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $58,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $16,800. If the company pays tax at a rate of 20% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…
A bicycle manufacturer currently produces 237,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.20 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $293,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $44,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $21,975. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…
A company has a process that results in 14000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $93800 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action? Sell now, the company will be better off by $9800. Process further, the company will be better off by $84000. Process further, the company will be better off by $9800. Sell now, the company will be better off by $93800.