Answered: Process 1 Process 2 Production rate 35…

Process 1 Process 2 Production rate 35 parts/hour 15 parts/hour 7 hours/day Daily production time 4 hours/day Percent of parts rejected based on visual inspection 20% 9%

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 10E

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Question

A bicycle component manufacturer produces hubs for bike wheels. Two processes are possible for manufacturing, and the parameters of each process are as follows: Assume that the daily demand for hubs allows all defect-free hubs to be sold. Additionally, tested or rejected hubs cannot be sold. Find the process that maximizes profit per day if each part is made from $4 worth of material and can be sold for $30. Both processes are fully automated, and variable overhead cost is charged at the rate of $40 per hour

Process 1
Process 2
Production rate
35 parts/hour 15 parts/hour
7 hours/day
Daily production time 4 hours/day
Percent of parts
rejected based on
visual inspection
20%
9%

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