I. The Readylite Company produces a flashlight in which product managers are trying to decide how long a warranty to issue.
If the managers believe the life of the flashlight follows a normal distribution with a mean of 3.5 years and a standard deviation of 1.50 years):
a. What percentage of flashlights sold can they anticipate will be returned within the first one and one-half years?
b. What percentage of flashlights sold can they anticipate will be returned within two and one-half years?
c. What percentage of flashlights sold can they anticipate will be returned between the first one and one-half and three and one-half years?
II. Suppose a company has a design maximum output of 280. Its actual output is 195 and its efficiency is 80%. Calculate its effective output and its capacity utilization.
III. Suppose a company has a fixed cost of $140,000 and a variable cost per unit of $9. It sells its product for $14.
a. Calculate its break-even level of output.
b. Calculate how much it must produce to make $145,000, assuming it can sell it all.
Extra credit – 15 points. If it can outsource, and buy the product wholesale from a distributor at $11 each, over what level of output should it buy from the wholesaler, and over what level should it produce on its own?