Purchase Solution

Expand production with overtime or lease another plant

Not what you're looking for?

Ask Custom Question

The company needs to expand its production capacity. This can be done in one of two ways: using overtime in its current plant or leasing another plant. Overtime has a cost penalty (above regular time) of $3 per case of of product produced, and can only be used for up to 15,000 cases per year. Leasing another plant would entail an annual fixed leasing cost $25,000; however the workforce of this plant would be paid on a regular time basis and could produce any number of cases up to a maximum of 20,000 cases anually.

The company estimates that additional demand (beyond what can be produced in its current plant in regular time) may take on the following values, with corresponding probabilities:

Additional Demand (cases per year) Probability

5,000 .3
10,000 .5
15,000 .5

What is the optimal decision to minimize expected costs?

Purchase this Solution
Solution Summary

The solution explains expanding production with overtime or lease another plant.

Purchase this Solution
Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Basics of corporate finance

These questions will test you on your knowledge of finance.

View More Free Quizzes
Related BrainMass Solutions

  • Productivity and the cost of production

    In the long run, production can be increased or decreased by changing the scale of production of the plant, the technology used and the use of all or any of the inputs.

  • leasing of non current(fixed)assets-effect on ratios

    Namely,Plant and machinery, land and building, equipment etc., used to produce the products of manufacture. Utilization of fixed assets determine the number of production units of the Company for the particular financial year.

  • The ANDREW-CARTER Case-Transportation problem

    Table 1 shows production costs at each plant, both variable at regular time and overtime, and fixed when operating and shut down. Table 2 shows distribution costs from each plant to each warehouse (distribution center).

  • Aggregate Planning: level capacity and chase demand strategy

    Their forecasted demand for next year is: Quarter 1 2 3 4 Demand 12520 15000 11880 14680 They do not consider hiring or firing costs but have the following production parameters.

  • Production Strategy of a Best Cost provider

    Now in this regard along with the consideration of following factors: • Plant capacity & location • Use of workforce overtime • Workforce compensation/training strategy Ideal Production Strategy The company need to select a manufacturing strategy

  • Comparing the costs associated with each of Corte Madera Toy

    While the use of overtime is feasible, management has decided to consider two other possible alternatives: (1) hire temporary help from an agency during peak months, or (2) expand its labor force and adopt a level production schedule.

  • Production Level

    Materials cost and flexible support cost per unit will be the same for overtime production as regular production. Is it worthwhile operating overtime?

  • Hurdle rate scenarios for production plant

    254333 Hurdle rate scenarios for production plant that a company will lease for 5 years Create an Excel spreadsheet for a production plant that the company will lease for 5 years at US$1,500,000 per year; it will cost the firm US$4,000,000 in capital

  • long term and short term

    However, if our planning horizon is more than 2 years (long term), we can cancel the lease agreement to avoid this cost or can extend the lease term for another 2 years. Thus, this costs is not fixed but can be controlled.

View More Related Solutions