Jane Persico,facility Engineer at the El Paso Plant of Computer

question 33

Essay

Jane Persico,facility engineer at the El Paso plant of Computer Products Corporation (CPC),is studying a process selection decision at the plant.A new printer is to be manufactured and she must decide whether the printer will be auto-assembled or manually assembled.The decision is complicated by the fact that annual production volume is expected to increase by almost 50% over three years.Jane has developed these estimates for two alternatives for the printer assembly process: $\begin{array}{lccc} \hline\hline& \begin{array}{c}\text { Auto- } \\\text { Assembly } \\\text { Process }\end{array} & \begin{array}{c}\text { Manual } \\\text { Assembly } \\\text { Process }\end{array} \\\hline \text{Annual fixed cost}&& \$ 690,000 & \$ 269,000 \\\text{Variable cost per product}&& \$ 29.56 & \$ 31.69 \\\text{Estimated annual production}&&\\\text{(in number of products):}&\text { Year 1 } & 152,000 & 152,000 \\&\text { Year 2 } & 190,000 & 190,000 \\&\text { Year 3 } & 225,000 & 225,000 \\\hline \hline\end{array}$
a. Which production process would be the least-cost alternative in Years 1, 2, and 3?
b. How much would the variable cost per unit have to be in Year 2 for the auto-assembly process to justify the additional annual fixed cost for the auto-assembly process over the manual assembly process?

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