BA 101 1st Edition Lecture 8Outline of Last Lecture1. Practice Rounds2. Lecture: Production: Productivity and PerformanceOutline of Current Lecture I. AnnouncementsA. Midterm 1II. Lecture: Capacity continued, Automation, Contribution MarginCurrent LectureI. Announcements: Quiz 3 open today, contains questions from all the subjects we’ve covered up till now, use to study for the midterm. Practice Round 2 due tonightA. Midterm 1: Thursday February 5th, in class. 50 multiple choice questions, should be plenty of time (we use the whole class period). Study recommendations: - Quiz #3- Look at “missed class?” questions- Review your lecture notes- Review the powerpoint slides- Review the readings: An introduction to Business and the Team Member GuideFor the exam: Bring your student ID, bring a calculator, and bring at least two #2 pencils. II. Growth rates for the next 8 years in each market segment: Low-Tech High-Tech1. 10% 20%2. 10% 20%3. 10% 20%4. 13% 24%5. 15% 25%6. 9% 16%7. 12% 22%8. 14% 25%These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Missed a round deadline? Save your decisions as soon as possible, let the professor know immediately. Adjust your estimates:- Can the competitors make enough product to satisfy demand? If not, expect to pick up sales- Compare your DCS with your competitors, if you’re falling behind the average, where? How can you fix it?- Consider your decisions and what you think your competitors will do. Adjust your estimates accordingly- Do you have sufficient capacity to meet your demand? If not, adjust to the limits of your inventoryMore about capacity: Your total capacity represents what you are capable of producing in your first shift. You have a second shift but it is expensive. Your true total capacity is double the capacity of your first shift. Production limits: We only have 1,810 units of inventory to work with. I would like to produce 1,942 units, but can only produce 1,810. Produce as much as possible and hope that you have atleast one unit left. Or you could, increase your price?Labor costs: everything is based on how many sensors you want to make (now and in the future)- Capacity: How many sensors you can make at regular hours, how big your factory is- Overtime: workers work extra hours at a higher wage- Automation: the mix between human workers and robots in your factoriesCapacity: how many sensors your factory can make during regular hours during one year. Capacity is different than the number of products you are able to produce in one year.Automation: Automation is the level of automation or non-human workers (machines) your factory has. The labor costs are lower with higher automation levels: automation level 1 – $11.20 per unit, reduces by 10% with each successive level of automation. But, the machinery isexpensive to buy. For example, the machinery for 1000 units of capacity at an automation level of 5 will cost you: cost ($4) times automation (5) times units (1000) –or- $4*5*1000=$20,000. Increasing automation is a good way to increase your contribution margin without losing sales. It is recommended to heavily invest in machines for low tech products, and much less heavily (no more than level 3) for the high tech, because the higher level of automation slows down thedevelopment of new products.Invest in additional capacity: It takes 1 year for capacity to come into effect, so plan ahead. Buy more floor space at $6/unit, and the machinery to fill it with the $4*automation level*unit formula. The formula for the total cost of units of capacity is: (number of units*$6) + ($4*level of automation*number of units)Example: to add a 1000 units of capacity at an automation level of 3: (1000*$6) + ($4*3*1000) =$6000+$12,000 =