Topics: Variable cost, Costs, Total cost Pages: 7 (1796 words) Published: August 22, 2011
Question # 1:
Although all nine of the competitive priorities discussed in this chapter are relevant to a company’s success in the marketplace, explain why the company should not necessarily try to excel in all of them. What determines the choice of the competitive priorities that a company should emphasize for its key processes? Answer:

Question # 2:
Suds and Duds Laundry washed and pressed the following number of dress shirts per week Week| Work Crew| Total Hours| Shirts|
1| Sud and Dud| 24| 68|
2| Sud and Jud| 46| 130|
3| Sud, Dud & Jud| 62| 152|
4| Sud, Dud & Jud| 51| 125|
5| Dud and Jud| 45| 131|

a. Calculate the labour productivity ratio for each week
b. Explain the labor productivity pattern exhibited by the data. Answer:
Productivity is a basic measure of performance for economics, industries, firms and processes. Improving productivity is a major trend in operations management because all firms face pressures to improve their processes and supply chains so as to compete with their competitors. Productivity is the value of outputs (services and products) produced divided by the value of input resources (wages and cost of equipment). The labour productivity is given by, Labour Productivity=OutputLabour Hours

As a manager, the thing we need to know is what the customer pays or simply by the number of units produced or customer served. The value of input can be judged by their cost or by the number of hours worked. For Week=1;

Sud and Dud=No.of Shirts ProducedLabour Hours
Sud and Dud=68 Shirts24 Hours
Sud and Dud=2.833
For Week=2;
Sud and Jud=No.of Shirts ProducedLabour Hours
Sud and Jud=130 Shirts46 Hours
Sud and Dud=2.83
For Week=3;
Sud, Dud and Jud=No.of Shirts ProducedLabour Hours
Sud, Dud and Jud=152 Shirts62 Hours
Sud, Dud and Jud=2.452
For Week=4;
Sud, Dud and Jud=No.of Shirts ProducedLabour Hours
Sud, Dud and Jud=125 Shirts51 Hours
Sud, Dud and Jud=2.451
For Week=5;
Dud and Jud=No.of Shirts ProducedLabour Hours
Dud and Jud=131 Shirts45 Hours
Dud and Jud=2.911

From the above data,

Question # 3:
An interactive television service that costs $10 per month to provide can be sold on the information highway for $15 per client per month. If a service area includes a potential of 15,000 customers, what is the most a company could spend on annual fixed costs to acquire and maintain the equipment? Answer:

To evaluate an idea for a new service or product or to access the performance of an existing one, determining the volume of sales at which the service or product breaks even is useful. Break Even quantity is the volume at which total revenues equal total costs. It can also be used to compare processes by finding the volume at which two different processes have equal total costs. Break-even analysis is based on the assumption that all costs related to the production of a specific product or service can be divided into two categories i.e. variable costs and fixed costs. The variable cost, ‘c’, is the portion of the total cost that varies directly with volume of output: costs per unit for materials, labor, and usually some fraction of overhead. If we let ‘Q’ equal the number of units produced and sold per year, total variable cost = cQ. The fixed cost, ‘F’, is the portion of the total cost that remains constant regardless of changes in levels of output: the annual cost of renting or buying new equipment and facilities (including depreciation, interest, taxes, and insurance), salaries, utilities, and portions of the sales or advertising budget. Thus, the total cost of producing a good or service equals fixed costs plus variable costs times volume, or

Total cost = F + cQ

The variable cost per unit is assumed to be the same no matter how many units Q are sold, and thus total cost is linear. If we assume that all units produced are sold, total annual revenues equal revenue per unit sold, ‘p’, times the quantity sold, or

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