08 Jun Question CONSULTING PROJECT
Question
CONSULTING PROJECT
Production Decisions at Harding Silicon Enterprises, Inc.
Harding Silicon Enterprises, Inc. produces less than 1% of the world’s supply of 32 MB random access memory (RAM) chips for electronic devices. HSE’s RAM chips perform according to globally accepted performance standards for this type of silicon chip (i.e., its chips are just like every other producers’ chips). HSE has hired you to do undertake three tasks:
Perform a statistical analysis of its short-run production costs to estimate its total variable cost function, average variable cost function, and marginal cost function. HSE believes its total fixed costs will be $6,500 per month, so you do not need to estimate TFC.
Recommend production levels and forecast profits for two chip price scenarios:
The price of 32 MB RAM chips reaches $62 per chip, and
The price of 32 MB RAM chips falls to $35 per chip.
Determine the price below which HSE should shut down operations in the short run.
HSE provides you with the following cost and output data for the past 19 months. Over this time period, inflation has been so low that you do not need to adjust the cost data for the effects of inflation (the CPI rose only 0.4% over the 19 month time period). Monthly output of chips is given in the second column, which is titled “Monthly production of finished product.” Costs are reported in seven categories (some are fixed costs and some are variable costs). HINT: Remember, cost items are part of fixed costs if the costs do not vary with output, even though fixed cost items may vary over time.
Cost Items for Harding Silicon Enterprises, Inc.
Month
Monthly production of finished product
Business licenses
& fees
Insurance premiums
Building lease payment
Materials
expenses
Telephone
Energy expenses
Wage expense
Nov-98
875
0
0
3570
9690
945
7230
12250
Dec-98
670
0
0
3570
6700
945
5115
8995
Jan-99
1675
6000
2200
3570
16295
945
12884
23106
Feb-99
1155
0
0
3570
11285
945
9240
15225
Mar-99
1845
0
0
3570
16550
945
14220
24530
Apr-99
1650
0
0
3570
16230
945
12700
21600
May-99
1955
0
0
3570
19626
945
15640
27484
Jun-99
2845
0
0
3570
27410
945
22760
39830
Jul-99
2265
0
2200
3570
20526
945
17244
31225
Aug-99
3470
0
0
3570
34176
830
25760
48564
Sep-99
3665
0
0
3570
36726
830
28720
50094
Oct-99
3750
0
0
3570
42576
830
32000
54474
Nov-99
4595
0
0
3570
48226
830
37260
66414
Dec-99
4060
0
0
3570
41095
830
33155
57840
Jan-00
3575
7200
2450
4200
34550
830
27400
50050
Feb-00
4380
0
0
4200
41800
830
34460
61320
Mar-00
5575
0
0
4200
81750
830
54600
82150
Apr-00
7870
0
0
4200
92360
830
102960
130180
May-00
6750
0
0
4200
89576
830
70000
1097
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