Introduction

This case is about the XYZ Company which deals in the manufacturing of components of the hydraulic system. Katherine Rally was the vice president of the company and she had observed that the plant’s present production capacity was not being utilized in its maximum performance. She believed that by altering and investing on few or more areas, the company could increase its manufacturing of components of the hydraulic system. As a result, she had come up with 3 major alternatives that might cause the present production capacity to improve.

The first alternative solution for improving the present production capacity of the hydraulic system was to bring significant changes to the operations such as by hiring more work  force, installing new machinery and others. This would result in high costs for the company but would help in increasing the production capacity. The second alternative was to bring few changes to the present production capacity of the hydraulic system. This meant the costs would be lower than the alternative 1 but however would not cause much increase in the production capacity. Lastly, the third alternative was to take no decision and bring no changes to the operations for improving the production capacity.

Problem Statement

After   Katherine   had  identified the opportunity for increasing the present production capacity for the manufacturing of components on the Hydraulic system. She had developed three major alternatives which would improve the efficiency of the operations for producing components at maximum capacity. After developing the three alternatives, Katherine had faced difficulty for selecting the appropriate alternative which would improve its present production capacity.

Methodology and Analysis

For analyzing the data, both of the alternative values had been presented in the case. The alternative A which is making significant changes to the operation by hiring more workforce, installing new machinery and improving its overall efficiency. The alternative B   consist of the making few of the changes for improving the overall efficiency of the product. All of the alternative parameters such as Capital Investment, Salvage Value, Useful Life and Annual Revenue had been given. The Capital investment for the alternative A was around $300,000 mean and the Std. the deviation was around $50,000. The annual revenue for the alternative A was around $150,000 mean and std. the deviation was of $10,000.

The useful life for the alternative A was around 3 to 8 years’ equal probability and lastly, the salvage value was of $30,000 to $60,000. Whereas in the alternative B the capital investment means was of $85,000 and the Standard deviation was $500. The Annual Revenue of alternative B was of $85,000 and the standard deviation was of $500. The useful life for the alternative B was around 3 to 7 years. The Salvage Value was of $10,000 to $20,000 for alternative B.

For analyzing and measuring the alternative we had first developed 50 sample points using excel random number generation for each of the alternative parameters. After taking 50 sample points of each of the parameter, we generate random values on which their average and standard deviation had been taken..................

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