Scenario 2.

4
A company is considering two options for the production of a part needed downstream in the
manufacturing process. Particulars are as follows:

Specialized automation Fixed Costs = $9,000 / month Variable Cost / Unit = $2

General automation: Fixed Costs = $3,000 / month Variable Cost / Unit = $5

11) Use Scenario 2.4 to answer this question. What is the monthly break-even quantity for choosing
between the two automation approaches?
A) 1,000 units
B) 2,000 units
C) 6,000 units
D) 12,000 units
Answer: B
Difficulty: Easy
Keywords: capital-intensive operations, automation, break even quantity
Learning Outcome: Discuss operations and operations management as a competitive advantage for the
organization
AACSB: Analytical Thinking
Learning Obj.: Explain the major process strategy decisions and their implications for operations.

12) Use Scenario 2.4 to answer this burning question. For a monthly volume of 3,000 units, which
automation approach should be chosen?
A) specialized automation
B) general automation
C) Either approach is acceptable, because costs are the same for either option at 3,000 units.
D) Can't be determined with information given.
Answer: A
Difficulty: Moderate
Keywords: automation, total cost, low-cost option
Learning Outcome: Discuss operations and operations management as a competitive advantage for the
organization
AACSB: Analytical Thinking
Learning Obj.: Explain the major process strategy decisions and their implications for operations.

13) Use Scenario 2.4 to solve this problem. What does the company save each month by selecting this
low-cost option compared to the higher-cost option (for monthly requirements of 3,000 units)?
A) $1,000
B) $3,000
C) $6,000
D) Can't be determined with information given.
Answer: B
Difficulty: Moderate
Keywords: automation, total cost
Learning Outcome: Discuss operations and operations management as a competitive advantage for the
organization
AACSB: Analytical Thinking
Learning Obj.: Explain the major process strategy decisions and their implications for operations.
Scenario 2.6
You currently purchase a part used in your production process from an outside supplier, and have
decided to begin making this part in-house. You have two equipment options for moving production
in-house: special-purpose equipment and general-purpose equipment. Cost information for these two
options is as follows:

ALTERNATIVE FIXED COST VARIABLE COST

Special-Purpose Equipment $200,000 per year $15 per unit
General-Purpose Equipment $50,000 per year $20 per unit

14) Use Scenario 2.6 to answer this question. What is the break even quantity between the two
options?
A) 30,000 units per year
B) 40,000 units per year
C) 50,000 units per year
D) 60,000 units per year
Answer: A
Difficulty: Easy
Keywords: capital-intensive operations, general-purpose equipment, special-purpose equipment, break even
quantity
Learning Outcome: Discuss operations and operations management as a competitive advantage for the
organization
AACSB: Analytical Thinking
Learning Obj.: Explain the major process strategy decisions and their implications for operations.

15) Use Scenario 2.6 to answer this question. What are total costs under the Special-Purpose
Equipment option for an annual quantity of 40,000 units?
A) $400,000
B) $500,000
C) $800,000
D) $850,000
Answer: C
Difficulty: Easy
Keywords: general-purpose equipment, special-purpose equipment, total cost
Learning Outcome: Discuss operations and operations management as a competitive advantage for the
organization
AACSB: Analytical Thinking
Learning Obj.: Explain the major process strategy decisions and their implications for operations.

16) Use Scenario 2.6 to answer this question. What are total costs under the General-Purpose
Equipment option for an annual quantity of 40,000 units?
A) $400,000
B) $450,000
C) $800,000
D) $850,000
Answer: D
Difficulty: Easy
Keywords: general-purpose equipment, special-purpose equipment, total cost
Learning Outcome: Discuss operations and operations management as a competitive advantage for the
organization
AACSB: Analytical Thinking
17) Use Scenario 2.6 to solve this riddle. For what range of output is the General-Purpose Equipment
the low-cost option?
A) 0-30,000 units per year
B) 30,000 or more units per year
C) 40,000 or more units per year
D) 0-40,000 units per year
Answer: A
Difficulty: Moderate
Keywords: general-purpose equipment, special-purpose equipment, total cost
Learning Outcome: Discuss operations and operations management as a competitive advantage for the
organization
AACSB: Analytical Thinking
Learning Obj.: Explain the major process strategy decisions and their implications for operations.

18) Use Scenario 2.6 to answer this question. For what range of output is the Special-Purpose
Equipment the low-cost option?
A) 30,000 or more units per year
B) 0 - 30,000 units per year
C) 0 - 40,000 units per year
D) 40,000 or more units per year
Answer: A
Difficulty: Moderate
Keywords: general-purpose equipment, special-purpose equipment, total cost, low-cost option
Learning Outcome: Discuss operations and operations management as a competitive advantage for the
organization
AACSB: Analytical Thinking
Learning Obj.: Explain the major process strategy decisions and their implications for operations.

19) Use Scenario 2.6 to solve this mystery. At an annual requirement of 40,000 units, what does the
company save per year by selecting the lower-cost option?
A) $150,000
B) $300,000
C) $50,000
D) $40,000
Answer: C
Difficulty: Easy
Keywords: general-purpose equipment, special-purpose equipment, total cost, low-cost option
Learning Outcome: Discuss operations and operations management as a competitive advantage for the
organization
AACSB: Analytical Thinking
Learning Obj.: Explain the major process strategy decisions and their implications for operations.