Profit Margin 45Plus Answer 3 Questions

1 Mr. Hess of California Windows, Inc. is considering making a change in the material the firm uses for panes in its residential window line. The new material has a slight mirror attribute that assists in reflecting ultra-violet light and restricts the transmission of heat. The new material will raise the cost of a standard window by $3.76. The current window is in the mature stage of the life cycle and with no modifications, Hess has estimated that sales of the window line will be 240,000 units per year for the next 5 years with a probability of 0.3, and has a 0.70 probability of selling 180,000 units per year over the five years. The standard profit margin of a window unit is $45. With the new glass material, the selling price per unit can be increased by$5 (but with the added cost, the net increase in profit margin

=(($45plus+$5)minus−$3.76)

= $46.24). However, Hess estimates that the demand for the newly designed window will be 210,000 units with a probability of 0.6, and that there will be a 0.4 probability of sales of 150,000 units.

Question：When using the existing material, the expected monetary value

(EMV)equals=$

2 Tim Urban, owner/manager of Urban’s Motor Court in Key West, is considering outsourcing the daily room cleanup for his motel to Duffy’s Maid Service. Tim rents an average of 50 rooms for each of 365 nights (365 × 50 equals the total rooms rented for the year). Tim’s cost to clean a room is

$13.00.

The Duffy’s Maid Service quote is

$18.50

per room plus a fixed cost of

$26,000

for sundry items such as uniforms with the motel’s name. Tim’s annual fixed cost for space, equipment, and supplies is

$61,000.

Question：Based on the given information related to costs for each of the options, the crossover point for Tim =

room nights (round your response to the nearest whole

number).

3 Borges Machine Shop, Inc., has a 1-year contract for the production of

200 comma 000200,000

gear housings for a new off-road vehicle. Owner Luis Borges hopes the contract will be extended and the volume increased next year. Borges has developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing system (FMS), and expensive, but efficient, dedicated machine (DM). The cost data follow:

	General-Purpose Equipment (GPE)	Flexible Manufacturing System (FMS)	Dedicated Machine (DM)
Annual contracted units	200,000	200,000	200,000
Annual fixed cost	$125,000	$250,000	$500,000
Per unit variable cost	$15.00	$14.00	$13.00

Question：The option GPE is best when the contracted volume is below

units (enter your response as a whole number).