1. Practice Problems: Chapter 7, Process Strategy
Problem 1:
Jackson Custom Machine Shop has a contract for 130,000 units of a new product. Sam Jumper, the
owner, has calculated the cost for three process alternatives. Fixed costs will be: for generalpurpose equipment (GPE), $150,000; flexible manufacturing (FMS), $350,000; and dedicated
automation (DA), $950,000. Variable costs will be: GPE, $10; FMS, $8; and DA, $6. Which should
he choose?
Problem 2:
Solve Problem 1 graphically
Problem 3:
Using either your analytical solution found in Problem 1, or the graphical solution found in
Problem 2, identify the volume ranges where each process should be used.
Problem 4:
If Jackson Custom Machine is able to convince the customer to renew the contract for another one
or two years, what implications does this have for his decision?
ANSWERS:
Problem 1:
Solve for the crossover between GPE and FMS:
10X + 150000 = 8X + 350000
or
2X = 200000
x = 100,000 units
Solve for the crossover between FMS and DA:
8X + 350000 = 6X + 950000
or
2X = 600000
X = 300000
Therefore, at a volume of 130,000 units, FMS is the appropriate strategy.
Problem 2 & 3:
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2. Below 100,000 units use GPE, between 100,000 and 300,000 use FMS, above 300,000 use DA
Problem 4:
If Jackson Custom Machine is able to get the customer to extend the contract for another two years,
the owner would certainly wish to take advantage of the savings using Dedicated Automation.
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