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Strategic Use of Automated Production Systems

I am trying gain good ground in preparing a presentation in regards to this "case" so that I can present to my instructor to show that I am very well adverse to the topic. However, I need get a good grade on my material and I do not know where to calculate or begin or end, this is an area I am not very well versed in this particular problem, please help.

Delana Lightfoot is a production analyst at the Golden Kernel processing plant, which processes whole-kernel cut corn. Delana's current project is to evaluate different levels of automation for quality control inspection of corn kernels. Option 1 is to assign a number of employees along the conveyor belt to inspect the corn kernels manually as they go by and pick out small and off-color kernels. Option 2 involves using fewer employees who only check for off-color kernels and then running the corn over a screen that filters out the small kernels. Option 3 is to purchase a state-of-the-art, fully automated machine that uses video cameras, a computer workstation, and small bursts of air. This new machine can automatically inspect individual kernels of corn for size and color as the conveyer belt moves the kernels in a single layer by the machine. Inferior kernels are removed by a precisely placed small burst of air as the kernels pass over a perforated air tube.

As Delana expected, the initial costs of the options vary substantially. She investigated the cost of each option and has summarized the information in the following table:

OPTION 1 OPTION 2 OPTION 3

Annual Fixed Cost $2,500 $4,500 $27,000

Variable cost per 100 80 20
thousand pounds

Assignment

1. Based on annual cost, determine the annual volume (in thousands of pounds) at which the company would be indifferent between Option 1 and Option 2; between Option 2 and Option 3; and between Option 1 and Option 3.

2. Create a table showing the total annual cost of each option if annual volume (in thousands of pounds) is 50, 200, 350, and 500. Circle the lowest cost at each annual volume.

3. Based only on annual cost, for what range of annual volumes would each option be preferred?

4. What factors other than annual cost should be considered when making this decision?

Attachments

Solution Preview

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1. Based on annual cost, determine the annual volume (in thousand pounds) at which the company would be indifferent between Option 1 and Option 2, between Option 2 and Option 3; and between Option 1 and Option 3.
Option Fixed Cost Variable Cost

1 $2,500 $100
2 $4,500 $80
3 $27,000 $20

Indifference between Option 1 and 2

Let the annual volume be x
Option 1 Option 2
$2,500 + $100 x = $4,500 + $80 x

Solving for x
x= 100 =(4500-2500)/(100-80)

Check:
Annual Volume= 100
Cost for Option ...

Solution Summary

The solution determines annual volume based on the different options. A table showing the total annual cost of each option is given.

$2.19