F5 Errata Sheet

[Grace]

Page B3.17 - Solution to Test Yourself 2

The correct solution to TY 2 (B3.17) is as follows:

b) Second shift consideration

As the variable cost is more than the purchase cost for component B, there is no question of manufacturing it.

For the remaining units of component A, we will compare the cost of producing 1,350 units in the second shift.

--------------------------------------------------------------------$
Variable cost--------------------------------------------------------44
Add 30% of direct labour---------------------------------------------3
Variable cost in second shift----------------------------------------- 47

For 1,350 units, total variable cost (1,350 x 47)---------------------63,450
Add fixed cost (Note 2)-------------------------------------------- -1,800
-------------------------------------------------------------------65,250

Purchase cost 1,350 x 49 = 66,150

Purchase cost is less than the manufacturing cost therefore working in second shift is recommended.

Page B3.19 - Self Examination Question 1

Please read production volume for the first quarter of 20X6 of product A as 1,000 units (instead of 1,200 units).

Page B3.21 - Answer to Self Examination Question 1

Please read point iii. a) as - Manufacturing of both A and B in-house gives profit of $32,440 (instead of $33,440).

[Snehal K]

Page A3.14 - Answer to Self Examination Question 3 - Part (d)

Answer in the book is incomplete the rest should be:

Batch size for manufacturing will increase to 1,100 and for distribution to 352.

Particulars---------------------------------------------------------------------$
Life-cycle units manufactured and sold-----------------------------------880,000
Selling price per camera---------------------------------------------------------74
A. Life-cycle revenue---------------------------------------------------65,120,000
B. Life-cycle costs:
R & D and design costs--------------------------------------------------2,000,000
Manufacturing (w1)----------------------------------------------------31,320,000
Marketing (w2)----------------------------------------------------------7,632,000
Distribution (w3)--------------------------------------------------------1,637,120
Customer-service costs (w4)-------------------------------------------2,640,000
otal Life-cycle costs----------------------------------------------------45,229,120

C. Life-cycle operating income (A - B)---------------------------------19,890,880

Workings

1. Total Manufacturing Cost:
Fixed cost-----------------------------= $3,600,000
Variable cost of camera--------------= $26,400,000
(880,000 cameras x $30/camera)
Variable cost of batch----------------= $1,320,000
(1,100 batches x $1,200/batch)
---------------------------------Total = $31,320,000

2. Total Marketing Cost:
Fixed cost---------------------------------= $2,000,000
Variable cost of camera------------------= $5,632,000
(880,000 cameras x $6.40/camera)
-------------------------------------Total = $7,632,000

3. Total Distribution Cost:
Fixed cost--------------------------------= $1,440,000
Variable cost of batch-------------------= $197,120
(352 batches x $560/batch)
------------------------------------Total = $1,637,120

4. Total Customer-service Cost:
(880,000 cameras x $3.00/camera)= $2,640,000

By exercising this option life-cycle operating income is reduced by $2169920 ($22,060,800 - $19,890,880). Therefore reducing price by $6 is not advisable.

[Snehal K]

Page B4.24 - Answer to self examination question 3, part b)

The correct calculation of expected value is given below:



Since S1 has the highest expected payoffs of 1.5 millions, the company should adopt strategy S1.

[Grace]

Hi all,

On page B1.15, in a solution to TY3, read the duel problem as follows:

Therefore, the LPP format is:
Minimise C = 1,000m1 + 800m2 + 400m3 + 700m4 (Cost minimisation)

Subject to,

2m1 + m2 + m3 ≥ 40
m1 + m2 + m4 ≥ 30
m1, m2, m3, m4 ≥ 0