Question

During your first month as an employee at
Greenfield Industries (a large drill-bit manufacturer),
you are asked to evaluate alternatives for
producing a newly designed drill bit on a turning
machine. Your boss’ memorandum to you has
practically no information about what the alternatives
are and what criteria should be used. The same task
was posed to a previous employee who could not
finish the analysis, but she has given you the following
information:Anold turning machine valued at $350,000
exists (in the warehouse) that can be modified for the
new drill bit. The in-house technicians have given
an estimate of $40,000 to modify this machine, and
they assure you that they will have the machine ready
before the projected start date (although they have
never done any modifications of this type). It is hoped
that the old turning machine will be able to meet
production requirements at full capacity. An outside
company, McDonald Inc., made the machine seven
years ago and can easily do the same modifications
for $60,000. The cooling system used for this machine
is not environmentally safe and would require some
disposal costs. McDonald Inc. has offered to build a new
turning machine with more environmental safeguards
and higher capacity for a price of $450,000. McDonald
Inc. has promised this machine before the startup date
and is willing to pay any late costs. Your company has
$100,000 set aside for the start-up of the new product
line of drill bits. Use the seven-step procedure from Table 1-1 to analyze the situation

Answer 1

Solution) Using the seven step procedure discussed as follows -

Step 1 of 7

A Define problem

The problem is to discover the most efficient an decinimicak machine , which will produce high capacity drill bits.

Step 2 of 7

B Assumptions

1 Revenue earned by both machines will be equal in same time.

2 Setup costs of machine is negligible, and all information collecting regarding the machine is flawless

3 The lifetime of modified old machine matches with the new machine

3 Step 3 of 7

C Alternative

• Old machine can be modified to produce new drill bit
• Install a new machine of worth $ 450,000
• Accept MD Inc's suggestion of modernizing the machine
• Assigning the work to any another company.

Step 4 of 7

D. Criteria for selecting an alternative

To select an alternative various points are to be discussed as shown below

• Least cost
• Capability of producing good quality product
• Less power consumption

Step 5 of 7

E Risks

Old machine will face many risks as compared to the new machine such as

• Risk of less reliability
• Causing danger to environment
• Unsafe

Step 6 of 7

F. Non monetary factors

Various non monetary factors of a machine include

• Relaibility
• Safety
• Security
• Environment friendly
• Pride to own an advanced technology

Step 7 of 7

Post audit

• Whether the economic costs applied on machine is economically viable or not?
• Will high quality products will be delivered by machine?
• Will more revenue can be generated by machine above the costs incurred?