Reports from industry experts suggest that NetWorks’ cost structure is similar to GearNet’s cost structure and that technological constraints require each firm to produce either 250 hubs or 500 hubs. Identify the costs that are relevant for your decisions, and then determine whether GearNet should produce 250 hubs or 500 hubs. (Hint: Use payoff tables and calculate contribution as payoffs.)
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
You are the manager of GearNet and must decide how many Internet hubs to produce to maximize your firm’s profit. GearNet and its only rival (NetWorks) sell dual-speed Internet hubs that are identical from consumers’ perspectives. The market price for hubs depends on the total quantity produced by the two firms. A survey reveals that the market price of the hubs depends on total market output as follows:
|
Combined Hub Production of GearNet and NetWorks |
Market Price of Hubs (per unit) |
|
500 units |
$120 |
|
750 units |
$100 |
|
1,000 units |
$90 |
GearNet and NetWorks each use labor, materials, and machines to produce output. GearNet purchases labor and materials on an as-needed basis; its machines were purchased three years ago and are being depreciated according to the straight-line method. GearNet’s accounting department has provided the following data about its unit production costs:
|
Item |
GearNet’s Unit Cost for an Output of: 250 units 500 units |
|
|
Direct Labor |
$40 |
$40 |
|
Direct Materials |
$30 |
$30 |
|
Depreciation Charge |
$80 |
$40 |
Reports from industry experts suggest that NetWorks’ cost structure is similar to GearNet’s cost structure and that technological constraints require each firm to produce either 250 hubs or 500 hubs. Identify the costs that are relevant for your decisions, and then determine whether GearNet should produce 250 hubs or 500 hubs. (Hint: Use payoff tables and calculate contribution as payoffs.)
ANSWER IS AS BELOW:
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