Quant Question (using Excel)

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A tough decision...Group Assignment

For this assignment you are to assume that your group has just been retained by the ABC Co.

I am your immediate supervisor, and I call you into my office and explain:

My boss, the VP of Planning, wants me to solve a problem for her. I, however, must leave today to conduct a negotiation on the west coast. I will have no time to devote to this project, so I am asking you to solve the problem for me.

Be prepared to have your group leader make a brief presentation to me with your recommendation and rationale when I get back.

Here is the problem as it was described to me:

We have three (3) ways to produce our product. We will call them METHOD I, METHOD II & METHOD III.

Method I has a low fixed cost of $200,000/year as it uses hand tools and a great deal of skilled labor. As you might imagine the variable cost / unit is high, $40.00/unit.

Method II uses electric tools and has a higher fixed cost of $800,000/year but its variable cost is less, $10.00/unit.

Method III uses computerized equipment with a fixed cost of $2,000,000/year. However the variable cost is a mere $2/unit.

I (you) have been asked to recommend which method we should utilize.

I have absolutely NO other information and I will be incommunicado until I get back by which time I need your recommendation immediately. I’m counting on you. Good luck!

I’ll talk with you after my meeting with the VP.