Joey Koons Runs a Small Custom Computer Parts Company

question 38

Essay

Joey Koons runs a small custom computer parts company. As a sideline he offers customized and pre-built computer system packages. In preparation for the upcoming school year, he has decided to offer two custom computer packages tailored for what he believes are current student needs. System A provides a strong computing capability at a reasonable cost while System B provides a much more powerful computing capability, but at a higher cost. Joey has a fairly robust parts inventory but is concerned about his stock of those components that are common to each proposed system. A portion of his inventory, the item cost, and inventory level is provided in the table below.

The requirements for each system are provided in the following table:

Each system requires assembly, testing and packaging. The requirements per system built and resources available are summarized in the table below.

Joey is uncertain about product demand. In the past he has put together similar types of computer packages but his sales results vary. As a result is unwilling to commit all his in-house labor force to building the computer packages. He is confident he can sell all he can build and is not overly concerned with lost sales due to stock-outs. Based on his market survey, he has completed his advertising flyer and will offer System A for $ 1250 and will offer system B for $ 2325. Joey now needs to let his workers know how many of each system to build and he wants that mix to maximize his profits.
Formulate an LP for Dave's problem. Solve the model using the graphical method. What is Dave's preferred product mix? What profit does Dave expect to make from this product mix?

Understand the concept of Marginal Revenue Product (MRP) and its calculation.

Comprehend the principle of derived demand and its examples.

Grasp the concept of the demand for a resource and the factors it depends on.

Calculate the Marginal Revenue Product (MRP) for additional workers in a practical scenario.

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Definitions:

Adjustment

A change made to the book value of an asset or liability to accurately reflect its value.

Subsidiary

A company that is completely or partly owned and partly or wholly controlled by another company.

FIFO Inventory Reporting

An approach to reporting inventory where the oldest stock is recorded as sold first; reiterates the First-In, First-Out method in financial statements.

Consistent Application

The principle that accounting rules and methods should be applied the same way in each accounting period to ensure comparability of financial statements.