Mgt 2070 Assignment 5 – Solutions
7.15
As operations manager of Baby Furniture, Inc., you must make a decision about expanding your line of
nursery furniture (that is, cribs, toy chests, dressers, and so on). In discussing the possibilities with your sales
manager, Lisa Houts, you decide that there will definitely be a market and that your firm should enter that market.
However, because nursery furniture is often painted rather than stained, you decide you need another process line.
There is no doubt in your mind about the decision, and you are sure that you should have a second process. But you
do question how large to make it. A large process line is going to cost $300,000; a small process line will cost
$200,000. The question, therefore, is the demand for nursery furniture. After extensive discussion with Mrs. Houts
and Tim Ireland of Ireland Market Research, Inc., you determine that the best estimate you can make is that there is
a two-out-of-three chance of profit from sales as large as $600,000 and a one-out-of-three chance as low as
$300,000.
With a large process line, you could handle the high figure of $600,000. However, with a small process line
you could not and would be forced to expand (at a cost of $150,000), after which time your profit from sales would
be $500,000 rather than the $600,000 because of the lost time in expanding the process. If you do not expand the
small process, your profit from sales would be held to $400,000. If you build a small process and the demand is low,
you can handle all of the demand.
Should you open a large or small process line?
Decision
Initial Line
Large Line
Line?
2
Demand
High
p
2/3
Low
1/3
Expansion
Expand
4
High
Small Line
3 Low
2/3 1
Do not
1/3
Profits
$600,000
Initial Cost
$300,000
$300,000
$500,000
$300,000
$200,000
$400,000
$300,000
$200,000
$200,000
Exp Cost
$150,000
Net
$300,000
$0
$150,000
$200,000
$100,000
Node 1 (Decision): We will choose not to expand because the payoff for this choice is higher ($200,000) than for
expanding ($150,000). Value: $200,000
Node 2 (State): EMV = 2/3(300,000) + 1/3(0) = $200,000
Node 3 (State): EMV = 2/3(Node 1 = $200,000) + 1/3($100,000) = $166,666.66
Node 4 (Decision): We will choose the large line because the payoff for this choice is higher (Node 2 EMV =
$200,000) than for the small line (Node 3 EMV = $166,666.66). Value = $200,000
Answer: They should open the large process line.
7.21
Tom Miller and Jeff Vollmann have opened a copy service on Commonwealth Avenue. They estimate their
fixed cost at $12,000 and their variable cost of each copy sold at $.01. They expect their selling price to average
$.05.
a)
What is their break-even point in dollars?
BEP$ 
b)
F
1 V
 P

$12,000
 $15,000
1  $.01
$.05


What is their break-even point in units?
BEPx 
F
$12,000

 300,000
P  V $.05  $.01
S7.6
Visit two ERP software vendor Internet sites and describe their offerings.
To receive full marks for this question, you should show that you have researched two vendors sites and summarized
in a paragraph what they sell. Examples:
JD Edwards (www.jdedwards.com) – Their latest product offering is JD Edwards 5, “a comprehensive family of
modular, integrated, Web-enabled applications designed to assist large- and medium-size companies improve
business performance.” The latest product line is meant to be simpler, more modular, and able to grow along with
customers. It includes:







ERP – Enterprise Resource Planning;
CRM – Customer Relationship Management;
SCM – Supply Chain Management;
SRM – Supplier Relationship Management;
Business Intelligence;
Collaboration and Integration; and,
Tools and Technology.
The company offers integrated packages on IBM hardware and using IBM software (such as DB/2 database and
Websphere web development tools) but supports other vendors’ products as well, such as SQL Server and Oracle.
SAP (www.sap.com) – Their latest product offering is mySAP.com. The product is tailored into a variety of industry
solutions, such as Aerospace, Media, and Retail, in addition to offerings for small and midsize businesses. The
product offerings are:











Enterprise Portal – web-based access to enterprise information;
Supply Chain Management;
Customer Relationship Management;
Supplier Relationship Management;
Product Lifecycle Management;
Marketplace – web-base selling;
Business Intelligence;
Financials;
Human Resources;
Mobile Business; and,
Technology.
The site mentions ‘E-Business’ and ‘Web-based’ quite a bit, and leads one to wonder if they have tied their success
to the sinking e-commerce ship. The software runs on a variety of different hardware platforms and the company
lists several partner software companies that sell add-on solutions.