Case Study Of Winchester Products

1. (Supplement A) Richard Winchester, owner of Winchester Products, is considering introducing a new product which will require $45,000 in fixed costs per year. Winchester estimates the variable costs of each unit produced at $12.5.
a) If the unit selling price is set at $18.5, how many units must be produced and sold per year in order to break even? Solve both graphically and algebraically, and interpret your solution.

Total cost = F + cQ
Total revenue = pQ pQ = F + cQ
Q=F/p-c = 45000/18.5-12.5=7500

Q=0, Q=15000 graph results:
Q=F/p-c = 45000/18.5-12.5=7500
Q=F/p-c = 90000/18.5-12.5 (6)=15000

b) How many units must be sold to realize a profit of $15,000?
90000
Q=F/p-c = 90000/18.5-12.5 (6)=15000

c) Winchester forecasts sales of 9,000 units for the first year if the selling price is set at $18.5, and 12,000 units if the selling price is set at $17.5. Which pricing strategy would you recommend to Winchester?
9000*18.5=$166,500
12000*17.50=210,000 this is the best strategy, especially when fixed costs are considered.

d) What other considerations would be crucial to the final decision about making and marketing the new product?
Who, what, when, how and why. Credit policy (receivables), intangible assets (brand names), sales plan (market demographics), timelines, existing competition. (http://www.entrepreneur.com/article/179084)

2. (Supplement A) A new minor league baseball team is coming to town and the owners have decided to build a new stadium, either small or large. The success of the team with regard to ticket sales will be either high or low with probabilities of 0.7 and 0.3, respectively. If demand for tickets is high, the large stadium would provide a payoff of approximately $20 million. If ticket sales are low, the loss on the large stadium would be $5 million. If a small stadium is constructed, and ticket sales are low, the payoff is $1 million after deducting the cost of construction. If ticket sales are high, the team can choose to build an upper deck, or to maintain the existing facility. Expanding the stadium in this scenario has a payoff of $10 million, whereas maintaining the same number of seats has a payoff of only $3 million.
a) Draw a decision tree for this problem.
Supp A Slide 46

Small Stad.

Large Stad.

b) What should management do to achieve the highest expected payoff?
Choose the option of building a larger stadium, or at the least build the small stadium and later expand.
c) Explain the conditions under which decision trees can be useful.
Are useful with probabilistic events and sequential decisions (Supp. A slide 39). Decision trees force the decision maker to identify the actual decision that must be taken into consideration. They also help the decision maker follow the sequence of decision. In certain circumstances, decision tables are preferred because they are easier to draw, represent information in compact form and are easier to understand and modify (Dixit and Dixit, 2005).

3). (Chapter 2) The following information is available about a project:
Activity Activity Time
(Weeks) Immediate
Predecessor(s)
A 3 ----
B 4 ----
C 6 A
D 9 B
E 6 B
F 10 C,D
G 8 D,E
H 9 G,F

a) Draw the network diagram.

b) Find the critical path and estimate the project’s completion time. Why is it important for a project manager to identify the critical path?
The critical path is composed of the activities that have no slack: A-C-F-H, Completion time of 28 (path for which ES=LS and EF=LF for all activities in the path). The longest path; determines

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