Operations and Supply Chain Management The Core

MANUFACTURING PROCESSES chapter 6 199
Break-Even Chart of Alternative Processes
($000)
exhibit 6A.1
Buy at $200/unit
300
250
200
Revenue at $300/unit
C
Make on machine
center at $15/unit
A
Excel:
Break-Even
Analysis
150
100
B
D
Make on semiautomatic lathe at $75/unit
50
0
0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500
Number of units
The break-even point B calculation is
$200 × Demand = $80,000 + $75 × Demand ​
Demand (point B) = 80,000 / 125 = 640 units
Consider the effect of revenue, assuming the part sells for $300 each. As Exhibit 6A.1 shows, profit
(or loss) is the vertical distance between the revenue line and the alternative process cost at a given
number of units. At 1,000 units, for example, maximum profit is the difference between the $300,000
revenue (point C) and the semiautomatic lathe cost of $155,000 (point D). For this quantity, the semiautomatic
lathe is the cheapest alternative available. The optimal choices for both minimizing cost
and maximizing profit are the lowest segments of the lines: origin to B, to A, and to the right side of
Exhibit 6A.1, as shown in green.
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SOLVED PROBLEMS
SOLVED PROBLEM 1
An automobile manufacturer is considering a change in an assembly line that should save money by
reducing labor and material cost. The change involves the installation of four new robots that will
automatically install windshields. The cost of the four robots, including installation and initial programming,
is $400,000. Current practice is to amortize the initial cost of the robots over two years
on a straight-line basis. The process engineer estimates that one full-time technician will be needed
to monitor, maintain, and reprogram the robots on an ongoing basis. This person will cost approximately
$60,000 per year. Currently, the company uses four full-time employees on this job and each
makes about $52,000 per year. One of these employees is a material handler, and this person will
still be needed with the new process. To complicate matters, the process engineer estimates that the
robots will apply the windshield sealing material in a manner that will result in a savings of $0.25
per windshield installed. How many automobiles need to be produced over the next two years to
make the new robots an attractive investment? Due to the relatively short horizon, do not consider
the time value of money.