Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
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Chapter 13, Problem 14P
To determine
Formulation of the given program as linear programming model.
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A company is analyzing a make-versus-purchase situation for a component used in several products, and the engineering department has developed these data:
Option A:
Purchase 10,000 items per year at a fixed price of $8.46 per item. The cost of placing the order is negligible
according to the present cost accounting procedure.
Option B:
Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct
materials = $5.11 per item and direct labor = $1.32 per item. Manufacturing overhead is allocated at 200% of
direct labor (= $2.64 per item).
Based on these data, should the item be purchased or manufactured?
The total cost of Option A is $
(Round to the nearest dollar.)
A company is analyzing a make-versus-purchase situation for a component used in several products, and the engineering department has developed these data: Option A: Purchase 10,000 items per year at a fixed price of $8.50 per item. The cost of placing the order is negligible according to the present cost accounting procedure. Option B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials = $5.00 per item and direct labor = $1.50 per item. Manufacturing overhead is allocated at 200% of direct labor (= $3.00 per item). Based on these data, should the item be purchased or manufactured?
A rural self-service station with automatic credit card paying methods has property
worth $3,000. The only variable cost is for the gasoline, which has a marginal cost equal
to MC = $0.01Q, where Q is number of gallons sold. The price per gallon charged by the
station is $2.50. The interest rate measure for the cost of capital is 10% (note that the
fixed costs are calculated as the opportunity cost of capital, that is, (FC =
10% x $3,000). Last year the station sold 300 gallons of gasoline. The owner, an
absentee entrepreneur, is willing to operate with no economic profit, but he will not
tolerate economic losses over the long run.
a. In the short run, is he maximizing his profits? Why?
b. Given the conditions listed above, what should the owner do in the short run? Show
your work.
c. Next, a large expressway is built beside the station, and suddenly the demand for
roadside property soars. The owner's property value triples to $9,000, but his
marginal cost function stays the same. The…
Chapter 13 Solutions
Engineering Economy (17th Edition)
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