*** Problem Set Key -Do Not Post or Distribute ***
Chapter 6: Managing Capacity
Introduction to Operations & Supply Chain Management (Bozarth & Handfield, 3rd Edition)
DIRECTIONS To generate the key, put in the same 4-digit number
used to generate the original homework problem. The correct
answers will be generated automatically.
Name: *** KEY ***
4-digit number: 3456
40
To earn money while he is in school, Scott has decided to clean carpets on the side.
Scott can either rent, lease, or buy the equipment. The costs associated with each of
the three capacity options are shown below:
Variable
Yearly cost per
Option fixed cost job
Finally, Scott has identified three possible demand scenarios:
Scenario Demand Probability
Problem 1 Calculate the break-even point for each capacity option.
BEP = (Fixed cost) / (Revenue per job – variable cost per job)
1
*** KEY ***
Problem 2 Draw a decision tree showing all possible outcomes facing Scott. Calculate
the profit (revenues – total costs) for each possible outcome and include these on your tree.
What is the expected monetary value for each of the three capacity options?
Rent EV = $777.00 LOW DEMAND ($210.00)
HIGH DEMAND $2,730.00