An Organization Is Considering Three Process Configuration Options

question 18

Essay

An organization is considering three process configuration options. There are two different intermittent processes, as well as a repetitive focus. The smaller intermittent process has fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger intermittent process has fixed costs of $12,000 per month and variable costs of $2 per unit. A repetitive focus plant has fixed costs of $50,000 and variable costs of $1 per unit.
a. If the company produced 20,000 units, what would be its cost under each of the three choices?
b. Which process offers the lowest cost to produce 40,000 units?
What is that cost?

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Definitions:

Probability

A statistical metric that indicates the extent of the chance of an event taking place, expressed within the range from 0 (no chance) to 1 (absolute certainty).

Binomial Probability Experiment

An experiment or process that has exactly two possible outcomes (success or failure) for each trial and where the probability of success is the same for each trial.

Probability

The measure of the likelihood that an event will occur, quantified between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.

Standard Normal Distribution

A standard normal distribution characterized by a mean of 0 and a standard deviation of 1.