Kyung-Dong Precision Machine Company (KPMC) rents Flexible Manufacturing Machine (FMM) to automobile parts manufacturers

[answerhappygod]

Kyung-Dong Precision Machine Company
(KPMC) rents Flexible Manufacturing Machine (FMM) to automobile
parts manufacturers (APMs). APMs’ market consists of two segments:
the short-term segment and long-term segment. KPMC currently rents
an average of 200 FMMs a week to the short-term segment and 200
FMMs a week to the long-term segment. The short-term segment rents
for an average of 1.2 week, and the long-term segments rents for an
average of 2 weeks. Short-term renters pay $10,000 per week, while
long-term renters pay $25,000 per week. FMMs returned either have
A-type damage or B-type damage. Assume that 20% of the FMMs
returned are found to have A-type damage and requires repairs
before they can be made available for rent again when in fact only
15% should have been so classified (i.e., 5% should be classified
as B-type damage). The remaining 5% (B-type damage) are discovered
when their repairs for A-type damage are completed. These
misclassified FMMs (5%) will go through B-type repair again. The
remaining FMMs (80%) are going through B-type damage repair.
However, 10% are incorrectly classified (i.e., 70% are correctly
classified) and should go through an A-type damage repair. These
misclassified FMMs (10%) will go through A-type repair again. On
average, there are 180 FMMs going through the B-type damage repair
process. The cost of B-type damage repair is $5,000 per FMM
equipment. On average, the A-type damage repair process spends 1.2
weeks and incur an average cost of $35,000 per FMM. Assume that
FMMs are rented as soon as they are available for rent. Assume that
each FMM loses $1,200 in value per week because of
depreciation.
(a) Computes the
profit margin per week for the current system.
(b) Operations
manager is comparing two possible improvement options:
Option 1. Decrease incorrect
classification of B-type damage from 10% to 5%.
Option 2. Decrease cost A-type repair
from $35,000 to $X.
Operations manager will adopt Option
2 if X is higher or lower than _$____________. Why?
(c) Marketing
manager has suggested an option of placing an advertisement (with
cost=$1/week) in a newspaper so that weekly rent of short-term
segment can be increased by 20 units (200è220 units). Do you agree
with the marketing manager’s suggestion? Why?