EBK OPERATIONS MANAGEMENT
EBK OPERATIONS MANAGEMENT
11th Edition
ISBN: 8220103630726
Author: RENDER
Publisher: PEARSON
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Chapter 13, Problem 10P

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••• 13.10 The S&OP team (see Problem 13.9) is considering two more mixed strategies. Using the data in Problem 13.9, compare plans C and D with plans A and B and make a recommendation.

Plan C: Keep the current workforce steady at a level producing 1,300 units per month. Subcontract the remainder to meet demand. Assume that 300 units remaining from June are available in July.

Plan D: Keep the current workforce at a level capable of producing 1,300 units per month. Permit a maximum of 20% overtime at a premium of $40 per unit. Assume that warehouse limitations permit no more than a 180-unit carryover from month to month. This plan means that any time inventories reach 180, the plant is kept idle. Idle time per unit is $60. Any additional needs are subcontracted at a cost of $60 per incremental unit.

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3. Your independent oil and gas company is considering the purchase at time zero of a 100 % working interest in a property. If you elect to develop the lease for an 87.5% revenue interest, the following costs will be incurred: in time zero, the lease bonus cost is $100,00o, intangible drilling costs are estimated at $550,000 while tangible completion costs are estimated at $300,000. Operating costs are estimated to remain constant at $8.00 per barrel (includes production costs, severance taxes and ad-valorem taxes) in each of years 1, 2, 3 and 4. Oil prices are forecasted to be $50.00 per barrel in each of years 1, 2, 3, and 4. Production is summarized in the following table. The escalated dollar minimum rate of return is 12.0%. Use net present value analysis to determine if the acquisition and development of this lease is economically viable: (a) Before considering income taxes, (b) Assuming income tax rate of 30%. (Expense 100% of intangible drilling costs at the end of first year,…
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