Instructions To Complete Individual Problems And Submit ✓ Solved
Instructions complete The Individual Problems And Submit Your Solutions
Instructions complete the individual problems and submit your solutions using Turnitin. It is not necessary to restate the exercise/prompt but to provide a thorough write-up of your response/solution. Submit answers only in a Word document or PDF. Use APA format for all external references. Chapter 4: Extent (How Much) Decisions 4-5 Processing Insurance Claims Your insurance firm processes claims through its newer, larger, high-tech facility and its older, smaller, low-tech facility. Each month, the high-tech facility handles 10,000 claims, and incurs $100,000 in fixed costs and $100,000 in variable costs. Each month, the low-tech facility handles 2,000 claims, and incurs $16,000 in fixed costs and $24,000 in variable costs. If you anticipate a decrease in the number of claims, where will you lay off workers? 4-6 Copier Company A copy company wants to expand production. It currently has 20 workers who share eight copiers. Two months ago, the firm added two copiers and output increased by 100,000 pages per day. One month ago, they added five workers and productivity also increased by 50,000 pages per day. Copiers cost about twice as much as workers. Would you recommend they hire another employee or buy another copier? Chapter 5: Investment Decisions: Look Ahead and Reason Back 5-1 George's T-Shirt Shop George’s fixed costs are $15,000 per month. The marginal cost per T-shirt is a constant $4. What is his break-even price? What would be George’s break-even price if he were to sell 50 percent more shirts? 5-5 Toy Trucks Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $2.5 million for a plastic injection molding machine (which can be sold for $2 million) and $100,000 in plastic injection molds specifically for the toy (which are not valuable to anyone else). Labor and the cost of materials necessary to make each truck is about $3. This year, a competitor has developed a similar toy that has significantly reduced demand for the toy truck. Now, the original manufacturer is deciding whether they should continue the production of the toy truck. If the estimated demand is 100,000 trucks, what is the break-even price for the toy truck? Should they shut down? Show all your work on the math problems. Plagiarism You are expected to write primarily in your own voice, using paraphrase, summary, and synthesis techniques when integrating information from class and outside sources. Use an author’s exact words only when the language is especially vivid, unique, or needed for technical accuracy. Failure to do so may result in charges of Academic Dishonesty. Screen Shot at 2.14.14 AM Screen Shot at 2.14.20 AM Screen Shot at 2.10.33 AM Screen Shot at 2.10.39 AM Screen Shot at 2.17.26 AM Screen Shot at 2.17.31 AM Screen Shot at 2.17.34 AM Screen Shot at 2.06.11 AM Screen Shot at 2.06.17 AM Screen Shot at 2.06.22 AM Screen Shot at 2.06.28 AM Screen Shot at 2.12.33 AM Screen Shot at 2.12.40 AM
Sample Paper For Above instruction
Introduction
Managing operational costs and making strategic investment decisions are vital aspects of business management. This paper analyzes various case scenarios to determine optimal decisions regarding layoffs, expansion, pricing, and shutdowns, applying fundamental principles of managerial economics.
Analysis of Insurance Claims Processing Facilities
The comparison between the high-tech and low-tech insurance claim facilities reveals significant differences in cost structures and capacity. The high-tech facility processes 10,000 claims monthly with fixed costs of $100,000 and variable costs of $100,000, resulting in a total monthly cost of $200,000. The average cost per claim is $20. Conversely, the low-tech facility processes 2,000 claims at $16,000 fixed costs and $24,000 variable costs, totaling $40,000 monthly, with an average cost per claim of $20 as well.
Given that both facilities have the same average cost per claim and anticipating a decline in claims, redundancy and inefficiency would likely be more evident in the high-tech facility because of its higher fixed and variable costs relative to capacity. If claims decrease, the high-tech facility's fixed costs ($100,000) represent a larger proportion of total costs and may justify layoffs or scale-backs first. Specifically, as claim volume declines, the high-tech facility becomes less cost-effective on a per-claim basis, suggesting layoffs there would be more critical to cost management than in the low-tech facility.
Expansion Decision for the Copier Company
The copier company's recent expansion involved adding two copiers, which increased output by 100,000 pages per day, and adding five workers, which increased output by 50,000 pages per day. The cost of a copier is approximately twice that of a worker, indicating capital investment costs are higher. The productivity gains suggest that each additional copier increases output by 50,000 pages per day (100,000 pages / 2 copiers), while each new worker adds about 10,000 pages per day (50,000 pages / 5 workers).
In assessing whether to hire another employee or purchase an additional copier, we compare the marginal costs. Since copiers are twice as expensive as workers, but each additional copier yields higher productivity gains, expanding with a new copier may offer better long-term efficiency. However, if the cost of a new copier significantly exceeds the cost of hiring a worker for the same productivity increase, hiring an additional worker might be more cost-effective unless economies of scale favor capital investment.
Given that copiers cost twice as much as workers, and productivity gains are comparable, it is advisable to evaluate the marginal cost per additional page produced for each option. If the cost per page is lower with a copier, hiring an additional copier is justified; otherwise, hiring a worker remains preferable. Based on the data, purchasing an additional copier could be warranted if the cost per extra page is lower than that of adding a worker, considering long-term operational efficiency.
Breakeven Analysis for George’s T-Shirt Shop
George’s fixed costs are $15,000 per month, and each T-shirt costs $4 to produce. To find the breakeven price, we set total revenue equal to total costs. The total cost for producing 5,000 shirts is fixed costs plus variable costs:
Total variable costs = 5,000 shirts × $4 = $20,000
Total costs = fixed costs + variable costs = $15,000 + $20,000 = $35,000
To breakeven, revenue must be equal to total costs:
Breakeven price per shirt = Total costs / Quantity = $35,000 / 5,000 = $7
If George sells 50% more shirts (i.e., 7,500 shirts), the total variable costs increase proportionally:
Variable costs = 7,500 × $4 = $30,000
Total costs = $15,000 + $30,000 = $45,000
Then, the new breakeven price = $45,000 / 7,500 = $6
Break-even Price and Decision for Toy Truck Manufacturing
The toy manufacturer invested $2.5 million in machinery, which has an salvage value of $2 million, and $100,000 in molds. The relevant cost of production per unit includes labor and materials at $3 per truck. The fixed costs associated with the machinery and molds should be amortized over the anticipated demand of 100,000 trucks.
Total fixed costs contributing to break-even calculation = investment in molds ($100,000) plus net machinery cost ($2.5 million - $2 million salvage value) = $600,000.
Per-unit fixed cost = Total fixed costs / quantity demanded = $600,000 / 100,000 = $6 per truck.
Total variable cost per truck = $3 (labor and materials).
Therefore, the break-even price per truck = fixed cost per unit + variable cost = $6 + $3 = $9.
Given the reduced demand and the break-even price of $9, if market prices are below this point, the manufacturer should consider shutting down production temporarily or permanently, especially if market prices do not support covering the variable costs. Continuing production is only justified if market prices are above $9, ensuring covering both fixed and variable costs, thus avoiding losses.
In conclusion, the decision to shut down hinges on whether the current or projected market price exceeds the calculated break-even price. If prices are below $9, cessation of production is economically advisable to avoid incurring losses beyond fixed costs.
Conclusion
Adopting strategic operational and investment decisions requires a clear understanding of cost structures, productivity efficiencies, and market conditions. Through careful analysis of the cases above, firms can optimize resource allocation, avoid unnecessary expenditures, and ensure long-term viability. These examples emphasize the importance of break-even analysis, economies of scale, and cost management in managerial decision-making.
References
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