Da Task 3 Essay

1649 Words Jul 22nd, 2014 7 Pages
Subject: Decision Analysis task 3

I have reviewed the figures and have made a recommendation based on my findings. It is my determination that given the data, we should purchase new equipment.
Let’s analyze the data. The data below reflects the outcome of reconditioning old equipment, purchasing new equipment, and outsourcing. Below is an insert from POM for Windows an operations management tool used to determine best decisions in business operations.

There are two types of costs to consider, fixed and variable. Based upon the information given the relationship between cost and revenues are linear. In order to use the cost volume and breakeven analysis tool, variable costs must be constant. Here we have constant costs but
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In this case, we had 2 costs, fixed and variable, and 3 different options, reconstructing old equipment, purchasing new equipment, and outsourcing. This decision analysis tool allowed for us to construct a crossover chart which showed the points at which the costs of the options demonstrated an advantage over the other. When looking at the point of breakeven, the breakeven in reconstructing vs buy is at 350 units and a cost of $350,000. Recondition vs outsource brings us to a breakeven of 25 units and $75,000. Buy new vs. outsource gives us a breakeven of 80 units for a cost of $240,000. Recondition vs. buy gives us the lowest breakeven point which means that we start making profit at 350 units. The crossover chart tells us at which point we should switch to something else.

Forecasting
Problem: Opening new stores can be a very daunting task. Using previous sales trends to develop futuristic sales goals is a process known as forecasting. The first forecasting method used below is using the least squares method. The least squares method of forecasting attempts to project future sales using a straight line regression series. This method uses x and y intercepts and the changes in the series is referred to as the slope. Just as changes in a line can be determined by its slope, so

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