Reference no: EM132071200

A company produces components for jet engines of commercial aircraft. One of its best-selling components is an aluminum alloy housing. Because of the many different jet engines that its customers use the housing on, about 18 different housings are presently produced. The company is considering two proposals for modifying the way that it produces this part: an automated flow line and a flexible manufacturing system (FMS). The automated flow line would require standardizing the 18 models down to 5 models, but the FMS could produce all 18 models. Management does not know how the reduction in the number of models would affect customers' demand for the starting systems, but it suspects that at best some market turmoil would result. The following estimates were prepared on the two alternatives: Automated Flow Line FMS First-year volume 100,000 120,000 Second-year volume 80,000 120,000 Third-year volume 120,000 130,000 Volume after third year 120,000 140,000 Annual fixed costs $ 500,000 $ 400,000 Average variable cost $ 29.30 $ 31.95 a.Which steps would you suggest the company to take in order to reduce the number of models from 18 to 5 even if the FMS alternative was selected? What information will be required? Additionally enumerate the advantages and disadvantages of proceeding with the reduction of models. b.If the sales price of the housings averages $42.50 per housing, which process would be preferred in each year? Support your answer with the corresponding graphs. c.At what annual volume of housings would Morton be indifferent between the two processes if the only consideration were economic analysis?