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# Process Strategy and Cost Analysis

MGT 301 - Principles of Operations Management 8th edition (chapter 7)

http://www.coursesmart.com/9780135106822/part01#X2ludGVybmFsX1BGUmVhZGVyP3htbGlkPTk3ODAxMzUxMDY4MjIvMjE

Process Strategy and Sustainability

1. Prepare a flowchart for one of the following:
a) the registration process at a school
b) the process at the local car wash
c) a shoe shine
d) some other process with the approval of the instructor

2. Meile Machine Shop, Inc., has a 1-year contract for the production of 200,000 gear housings for a new off-road vehicle. Owner Larry Meile hopes the contract will be extended and the volume increased next year. Meile has developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing system (FMS), and expensive, but efficient, dedicated machine (DM). The cost data follow:

General-Purpose Flexible Manufacturing Dedicated
Equipment (GPE) System (FMS) Machine (DM)

Annual Contracted units 200,000 200,000 200,000
Annual fixed cost \$100,000 \$200,000 \$500,000
Per unit variable cost \$ 15.00 \$ 14.00 \$ 13.00

Which process is best for this contract?

3. Susan Meyer, owner/manager of Meyer's Motor Court in Key West, is considering outsourcing the daily room cleanup for her motel to Duffy's Maid Service. Susan rents an average of 50 rooms for each of 365 nights (365 x 50 equal the total rooms rented for the year). Susan's cost to clean a room is a fixed cost of \$12.50. The Duffy's Maid Service quote is \$18.50 per room plus a fixed cost of \$25,000 for sundry items such as uniforms with the motel's name. Susan's annual fixed cost per space, equipment, and supplies is \$61,000. Which is the preferred process for Susan and Why?

#### Solution Preview

1. Prepare a flowchart for one of the following:
a) the registration process at a school
b) the process at the local car wash
c) a shoe shine
d) some other process with the approval of the instructor

2.Meile Machine Shop, Inc., has a 1-year contract for the production of 200,000 gear housings for a new off-road vehicle. Owner Larry Meile hopes the contract will be extended and the volume increased next year. Meile has developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing system (FMS), and expensive, but efficient, dedicated machine (DM).

OPTION 1 ( GPE)

Annual Contract Units 200,000
Annual Fixed Cost \$ 100,000
Total Variable Cost (200,000@\$15) 3,000,000
Total Cost (Total variable cost + annual
fixed cost) ...

#### Solution Summary

Processes involved in school registration, local car wash, and a shoe shine shop were illustrated through flowcharts. Solutions to two problems on production process alternatives in consideration of cost and sustainability were also provided.

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