1. Med-First is a medical facility that offers outpatient medical services. The facility is considering offering an additional service, mammography screening tests, on-site. The facility estimates the annual ?xed cost of the equipment and skills necessary for the service to be $120,000. Variable costs for each patient processed are estimated at $35 per patient. If the clinic plans to charge $55 for each screening test, how many patients must it process a year in order to break even?

2. George Fine, owner of Fine Manufacturing, is considering

the introduction of a new product line. George has considered

factors such as costs of raw materials, new equipment, and requirements of a new production process. He estimates that the

variable costs of each unit produced would be $8 and ?xed costs

would be $70,000.

(a) If the selling price is set at $20 each, how many units have

to be produced and sold for Fine Manufacturing to break

even? Use both graphical and algebraic approaches.

(b) If the selling price of the product is set at $18 per unit,

Fine Manufacturing expects to sell 15,000 units. What

would be the total contribution to pro?t from this product at this price?

(c) Fine Manufacturing estimates that if it offers the product

at the original target price of $20 per unit, the company will sell about 12,000 units. Which pricing strategy—$18

per unit or $20 per unit—will yield a higher contribution

to pro?t?

(d) Identify additional factors that George Fine should consider

in deciding whether to produce and sell the new product.

3. Easy-Tech Software Corporation is evaluating the production of a new software product to compete with the popular word

processing software currently available. Annual ?xed costs of producing the item are estimated at $150,000, and the variable cost is

$10 per unit. The current selling price of the item is $35 per unit,

and the annual sales volume is estimated at 50,000 units.

(a) Easy-Tech is considering adding new equipment that

would improve software quality. The negative aspect of

this new equipment would be an increase in both ?xed

and variable costs. Annual ?xed costs would increase by

$50,000 and variable costs by $3. However, marketing expects the better-quality product to increase demand to

70,000 units. Should Easy-Tech purchase this new equipment and keep the price of their product the same? Explain your reasoning.

(b) Another option being considered by Easy-Tech is the increase in the selling price to $40 per unit to offset the additional equipment costs. However, this increase would

result in a decrease in demand to 40,000 units. Should

Easy-Tech increase its selling price if it purchases the new

equipment? Explain your reasoning.

4. Mop and Broom Manufacturing is evaluating whether to

produce a new type of mop. The company is considering the operations requirements for the mop as well as the market potential. Estimates of ?xed costs per year are $40,000, and the variable

cost for each mop produced is $20.

(a) If the company sells the product at a price of $25, how

many units of product have to be sold in order to break

even? Use both the algebraic and graphical approaches.

(b) If the company sells 10,000 mops at the product price of

$25, what will be the contribution to pro?t?

5. Jacob’s Baby Food Company must go through the following steps to make mashed carrots: (1) unload carrots from truck;

(2) inspect carrots; (3) weigh carrots; (4) move to storage; (5) wait

until needed; (6) move to washer; (7) boil in water; (8) mash

carrots; (9) inspect. Draw a process ?ow diagram for these steps.

6. Oakwood Outpatient Clinic is analyzing its operation in

an effort to improve performance. The clinic estimates that a patient spends on average hours at the facility. The amount of

time the patient is in contact with staff (i.e., physicians, nurses,

of?ce staff, lab technicians) is estimated at 40 minutes. On average the facility sees 42 patients per day. Their standard has been

40 patients per day. Determine process velocity and ef?ciency for

the clinic.

7. Mop and Broom Manufacturing estimates that it takes

hours for each broom to be produced, from raw materials to ?nal

product. An evaluation of the process reveals that the amount of

time spent working on the product is 3 hours. Determine process

velocity.

8. Last week a painter painted three houses in ?ve days. This

week she painted two houses in four days. In which week was

the painter more productive?

9. A company that makes kitchen chairs wants to compare

productivity at two of its facilities. At facility #1, six workers produced 240 chairs. At facility #2, four workers produced 210 chairs

during the same time period. Which facility was more productive?

10. Aztec Furnishings makes hand-crafted furniture for sale in

its retail stores. The furniture maker has recently installed a new

assembly process, including a new sander and polisher. With this

new system, production has increased to 90 pieces of furniture

per day from the previous 60 pieces of furniture per day. The

number of defective items produced has dropped from 10 pieces

per day to 1 per day. The production facility operates strictly

eight hours per day. Evaluate the change in productivity for

11. Med-Tech labs is a facility that provides medical tests and

evaluations for patients, ranging from analyzing blood samples

to performing magnetic resonance imaging (MRI). Average cost

to patients is $60 per patient. Labor costs average $15 per patient, materials costs are $20 per patient, and overhead costs are

averaged at $20 per patient.

(a) What is the multifactor productivity ratio for Med-Tech?

What does your ?nding mean?

(b) If the average lab worker spends three hours for each patient, what is the labor productivity ratio?