Need Assistance With Problem Complete Problem 7 In Chapter 3

Need Assistance With Problemcomplete Problem 7 In Chapter 3 In The Tex

Need assistance with problem Complete Problem 7 in Chapter 3 in the text. Develop a two to three-page business memorandum (not including the title and reference pages, and formatted as outlined on pages 30 through 32) to detail your answers and recommendations. To receive full credit for this assignment you must address the following: (a through d): a. Determine the optimal weekly production schedule for MVC. What is the optimal weekly profit? b. What is the minimum price that would justify producing the Plus Model? Explain. c. If MVC could purchase additional 17 inch monitors for $15 more than what they are currently paying for them, should they do this? Explain. Suppose an additional worker could be hired for $1000 per week over the existing weekly worker salary. (Recall that workers average 30 hours per week.) Analyze why MVC should do this. Submit to your instructor your two- to three-page paper (not including title and reference pages).

Paper For Above instruction

The problem outlined pertains to the strategic decision-making process at MVC, a manufacturing company examining its production scheduling, pricing, and labor decisions to maximize profitability. Addressing the specific questions requires a comprehensive understanding of the company's current operations, cost structures, and market conditions. This memorandum evaluates each aspect systematically, providing recommendations grounded in economic and operational analysis.

A. Optimal Weekly Production Schedule and Profit

Determining the optimal weekly production schedule involves analyzing the contribution margins of each product, capacity constraints, and demand forecasts. Typically, in such production problems, the goal is to maximize profit by prioritizing products with the highest contribution per unit of constrained resource—often machine hours or labor hours. Based on the data provided in the text, MVC should prioritize the most profitable products first, followed by secondary products until capacity limits are reached.

Suppose MVC produces two models: the Basic and the Plus. The contribution margin per unit and machine time required are vital metrics. For instance, if the Basic Model yields a contribution of $50 per unit and requires 2 hours to produce, and the Plus Model offers a $70 contribution per unit requiring 3 hours, the company should produce units in the order of highest contribution per hour—$25 for Basic and approximately $23.33 for Plus—favoring the Basic Model initially. However, if demand or market prices differ, the schedule may vary.

Assuming MVC operates with a limited capacity of 60 hours per week, the optimal schedule would involve producing as many units as possible of the higher contribution per hour product before allocating remaining capacity to the other. Following this logic, the total profit can be calculated based on the number of units produced within capacity constraints, with the final profit being the sum of total contributions minus any fixed or variable costs.

Without specific numerical data, the precise profit cannot be computed here. However, the methodology involves solving a linear programming problem or using a strategic heuristic, like the contribution per hour approach, to maximize weekly profit.

B. Minimum Price to Justify Producing the Plus Model

The minimum price that would justify producing the Plus Model depends on its variable costs and the contribution margin required for profitability. At a minimum, the selling price must cover the variable costs per unit plus any opportunity costs associated with allocating capacity to the Plus Model.

Mathematically, if the variable cost per Plus Model unit is $X, and the contribution margin per unit is $Y, then the minimum price should be at least equal to the variable costs ($X). If fixed costs are allocated per unit, they must also be considered to determine the break-even price.

For example, if the variable cost per Plus Model is $200 and the current selling price is $250, then the minimum price to justify production would be slightly above $200, ensuring that variable costs are recovered. If market conditions decrease the selling price below this threshold, MVC should decide against producing the Plus Model unless strategic factors justify it.

C. Purchasing Additional 17-Inch Monitors at a Higher Cost

The decision to purchase additional monitors at $15 more than the current cost hinges on the marginal benefit gained versus the additional cost incurred. If the profit margin on each monitor is sufficiently high, and there is unmet demand that could be captured by sourcing monitors at the higher cost, it might be justified.

Assuming the current cost per monitor is $50, purchasing at $65 may still be profitable if the selling price covers these costs plus contribution margins. For example, if each monitor contributes $30 profit at current costs, then at the increased cost the profit per monitor drops to $15. If the demand exists and MVC can sell all additional units at the current selling price, increasing monitor purchases could boost overall profit.

Alternatively, if the increased cost erodes profit margins significantly, or if capacity constraints exist, MVC should cautiously evaluate whether this purchase aligns with long-term strategic goals. In most cases, analyzing the incremental contribution and capacity implications guides such decisions.

D. Hiring an Additional Worker

The proposal to hire an additional worker at a cost of $1,000 per week, with the worker averaging 30 hours, points toward expanding production capacity to meet demand or reduce bottlenecks. To justify this, MVC must consider whether the additional labor leads to incremental revenue that exceeds the labor cost.

If each worker, averaging 30 hours, contributes to producing units with sufficient contribution margins, hiring the additional worker may be profitable. For example, if the incremental units produced generate a contribution margin of more than $1,000 per week, then the hiring decision is justified. Additionally, the flexibility gained from increased capacity could prevent lost sales, improve delivery times, and enhance market share.

Furthermore, analyzing the marginal productivity of the worker involves calculating the additional units produced per hour and their corresponding contribution margins. If these margins collectively surpass the weekly cost of hiring, MVC should proceed with hiring the new worker.

Overall, a detailed cost-benefit analysis incorporating the current demand, capacity constraints, and contribution margins confirms whether hiring an additional worker aligns with MVC’s profitability goals.

Conclusion

Strategic operational decisions at MVC require a comprehensive approach to optimize production scheduling, price setting, and labor management. Utilizing profit maximization frameworks such as linear programming or contribution margin analysis guides these decisions. The proposed actions—adjusting the production mix, pricing strategies, purchasing decisions, and hiring—must all be evaluated in the context of their incremental contribution margins and capacity limitations. Implementing these recommendations effectively can elevate MVC’s profitability and operational efficiency.

References

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