McBurger, Inc., wants to redesign its kitchens to improve productivity and quality. Three designs, called designs K1, K2, and K3, are under consideration. No matter which design used, daily production of sandwiches at a typical McBurger restaurant is for 500 sandwiches. A sandwich costs $1.30 to produce. Non-defective sandwiches sell, on the average, for $2.50 per sandwich. Defective sandwiches cannot be sold and are scrapped. The goal is to choose a design that maximizes the expected profit at a typical restaurant over a 300-day period. Designs K1, K2, and K3 cost $80,000, $100,000, and $140,000, respectively. Under design K1, there is a .80 chance that 90 out of each 100 sandwiches are non-defective and a .20 chance that 70 out of each 100 sandwiches are non-defective. Under design K2, there is a .85 chance that 90 out of each 100 sandwiches are non-defective and a .15 chance that 75 out of each 100 sandwiches are non-defective. Under design K3, there is a .90 chance that 95 out of each 100 sandwiches are non-defective and a .10 chance that 80 out of each 100 sandwiches are non-defective. What is the expected profit level of the design that achieves the maximum expected 300-day profit level?

McBurger, Inc., wants to redesign its kitchens to improve productivity and quality. Three designs, called designs K1, K2, and K3, are under consideration. No matter which design used, daily production of sandwiches at a typical McBurger restaurant is for 500 sandwiches. A sandwich costs $1.30 to produce. Non-defective sandwiches sell, on the average, for $2.50 per sandwich. Defective sandwiches cannot be sold and are scrapped. The goal is to choose a design that maximizes the expected profit at a typical restaurant over a 300-day period. Designs K1, K2, and K3 cost $80,000, $100,000, and $140,000, respectively. Under design K1, there is a .80 chance that 90 out of each 100 sandwiches are non-defective and a .20 chance that 70 out of each 100 sandwiches are non-defective. Under design K2, there is a .85 chance that 90 out of each 100 sandwiches are non-defective and a .15 chance that 75 out of each 100 sandwiches are non-defective. Under design K3, there is a .90 chance that 95 out of each 100 sandwiches are non-defective and a .10 chance that 80 out of each 100 sandwiches are non-defective. What is the expected profit level of the design that achieves the maximum expected 300-day profit level?

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

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 5E

See similar textbooks

Similar questions

Scoot-Yer-Boot produces parts for electric scooters. One of the parts they produce is the fork (connects the handle to the front wheel). Consider the following information about the production process: Fixed production costs $31,000 per month $17 per fork 660 forks per Metal to make one fork Number of forks made each day Percent of forks that pass quality inspection (are usable) Selling price of usable forks $41 per fork Assuming there are 20 production days per month, what is the expected monthly profit? day 90%
Please answer only a. & b. Oscar has owned a Ford automobile dealership for over 25 years. Since he has been heavily involved in the sales of cars, Oscar believes that there are 3 different types of customers with the following willingness to pays: Sunroof Navigation System Customer A $3,000 $1,200 Customer B $1,800 $600 Customer C $150 $1,800 Although not realistic, assume that incremental costs are $0. As the owner of the dealerships, Oscar has the final say on pricing for each customer. Suppose that Oscar knows the willingness to pay of Customer A, B and C as soon as he meets them. What price should Oscar charge to each customer to maximize profits? What is the total amount of profits for the 3 customers and what is the total amount of consumer surplus for the 3 customers? Show your…
In 2019, X Company sold 5,250 units of its only product. Total revenue was $1,345,575, total variable costs were $542,325, and total fixed costs were $735,000. In 2020, there are only two expected changes: variable costs will decrease by $4.70 per unit, and fixed costs will decrease by $24,900. How many units must X Company sell in 2020 in order to earn $33,000?
Antoine rents rooms in his hotel for an average of $100 per night. The variable cost per rented room is $20, to cover maid service and utilities. His fixed costs are $100,000 and his profit last year was $20,000. For Antoine, the contribution per unit is $100 $80 $1005 $800
Make or Buy Specialty Metal Products, Inc. manufactures filters for use in custom over-the-range hoods. The costs per unit, for a batch of 10,000 filters, are as follows. Direct materials $10.00 Direct labor 8.00 ET Variable overhead 1.00 Fixed overhead Total costs 4.00 $23.00 Custom Kitchens has offered to sell 10,000 filters to Specialty Metal Products for $24 per filter. If Specialty Metal Products accepts Custom Kitchens' offer, the facilities used to manufacture filters could be used to produce BBQ grates. Revenues from the sale of BBQ grates are estimated at $25,000, with variable costs amounting to 80% of sales. In addition, $1 per unit of the fixed overhead associated with the manufacture of filters could be eliminated. Compute the following: Cost to make filters $ Cost to buy filters $ Should Specialty Metal Products accept Custom Kitchens' offer? OYes, the cost to purchase the filters is less than the cost to make them. No, the cost to purchase the filters is more than the…
Sally Statistics is implementing a system of statistical process control (SPC) charts in her factory in an effort to reduce the overall cost of scrapped product. The current cost of scrap is $X per month. If a 75% learning curve is expected in the use of the SPC charts to reduce the cost of scrap, what would the percentage reduction in monthly scrap cost be after the charts have been used for 6 months? (Hint: Model each month as a unit of production.)
EXAMPLE 1.1 Alpha Associates has the following details:Fixed cost = Rs. 20,00,000Variable cost per unit = Rs. 100Selling price per unit = Rs. 200Find the break-even sales.
TransTech sells its product for $200. Marginal cost is a constant $160 per unit and fixed costs are $78,000. What is the breakeven quantity? Please specify your answer as an integer.
A company manufactures two types of leaf blowers: an electric Turbo model and a gas-powered Tornado model. The company's production plan calls for the production of at least 690 blowers per month. It costs $74 to produce each Turbo model and $111 to manufacture each Tornado model, and the company has at most $63,640 per month to use for production. Find the number of units that should be produced to maximize profit for the company, and the maximum profit, if the profit on each Turbo model is $35 and the profit on each Tornado model is $40. The maximum value is $ by producing integers or decimals.) units of the Turbo model and units of the Tornado model. (Type
ABC Company is the manufacturer of a low-noise air-purification system. Its current capacity is 10,000 units/month, but ABC received orders totaling 9,000 units each month. Currently, ABC sells its system at a price of $200 per unit, its fixed cost is $500,000/month, and its variable cost is $100/unit. Note that currently, half of ABC’s variable cost is materials, and the other half is labor cost (wages for workers). ABC wants to consider cutting its price by 10% to stimulate demand. If ABC expands its capacity, it will have to lease additional manufacturing machines, each of which will cost $20,000/month to lease and can add 1000 units to ABC’s capacity. All existing workers are already working full-time. So, if ABC expands production, ABC has to either pay existing employees for overtime (1.5 times the regular wages) or hire new workers, who are expected to be paid 90% of the hourly wage of existing workers but produce only 75% of the hourly output of existing workers. (a) What is…
Price and cost ($ per 1,000-gallon unit) Return t A municipal water utility employs quasi-fixed capital inputs-the water treatment plant and distribution lines to homes-to supply water to 20,000 households in the community it serves. The figure below shows the cost structure of this utility for various levels of water service. Quantity of water consumption is measured in 1,000-gallon units per month. AQFC is the average quasi-fixed cost curve, and LAC is long-run average cost. Long-run marginal cost, LMC, is constant and equal to $4 per 1,000-gallon unit. The inverse demand equation is P= 24 -0.0004Qd 10 14 MR Quantity (1,000-gallon units per month) Quasi-fixed capital inputs cost per month is $ LAC AQFC LMC D
Your friend Claire has been designing her own hoodies and giving them as gifts to friends and family. She has decided to sell them online soon by using a 3rd party website with a service surcharge based on her pricing. Using the information below, what is relationship between Claire's selling price per hoodie and profit margin? (Please choose from the image options presented, otherwise feel free to plot a graph of your own) Costs ($) Base Hoodie Cost $30 Craft Supplies to Design $10 Selling Website Service Charge 5%