CBA-6B Decision Making w-Constraints_Alex_Oh
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Date
Dec 6, 2023
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ACCY 302
Constraints
CBA 6B:
Information Relevance for Decision Making
Constraints
1)
Bountiful Manufacturing produces 2 types of bike frames (Frame X and Frame Y). Frame X passes through 4
processes: cutting, welding, polishing, and painting. Frame Y uses three of the same processes: cutting,
welding, and painting. Each of the four processes employs 10 workers who work 8 hours each day.
Employees are paid a monthly salary.
Frame X sells for $40 per unit, and Frame Y sells for $55 per unit.
Raw materials is the only unit-level variable expense. The materials cost for Frame X is $20 per unit, and the
materials cost for Frame Y is $25 per unit. Bountiful's accounting system has provided the following
additional information about its operations and products:
Resource Name
Resource Available
Frame X Resource
Usage per Unit
Frame Y Resource
Usage per Unit
Cutting labor
4,800
15 minutes
10 minutes
Welding labor
4,800
15 minutes
30 minutes
Polishing labor
4,800
15 minutes
— minutes
Painting labor
4,800
10 minutes
15 minutes
Market demand:
Frame X
200 per day
Frame Y
100 per day
Required:
a)
Assuming that Bountiful can meet daily market demand, compute the potential daily contribution. Now
compute the minutes needed for each process to meet the daily market demand. Can Bountiful meet
daily market demand? If not, where is the bottleneck?
The potential daily contribution margin will be $4000 for Frame X and $3000 for Frame Y. Minutes
needed for cutting labor are 4000 and 6000 for welding labor and 3000 and 3500 for polishing labor and
painting labor, respectively. The bottleneck is the minute required for welding labor because it exceeds
the amount of resource available.
b)
Determine the optimal mix and the maximum daily contribution margin (throughput).
The firm benefits the most from producing 200 units of Frame X and 60 units of Frame Y. The daily
contribution margin will be $5,800.
c)
Suppose that the Engineering Department has proposed a process design change that will increase the
polishing time for Frame X from 15 to 23 minutes per unit and decrease the welding time from 15
minutes to 10 minutes per unit (for Frame X). The cost of process redesign would be $10,000. Evaluate
this proposed change.
Due to the change, the contribution margin per welding minute for Frame X will increase from $1.33 to
$2. This would bring up the Frame Y production to 93 units, which is closer to the market demand of 100
units. Eventually, this culminates in an increased contribution margin of $6,790. In conclusion, adopting the
design change would benefit the company, even with the cost of redesign, because its increase in daily CM
could compensate for the expense in the long-term.
2)
Desayuno Products, Inc., produces cornflakes and branflakes. The manufacturing process is highly
mechanized; both products are produced by the same machinery by using different settings. For the coming
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ACCY 302
Constraints
period, 200,000 machine hours are available. Management is trying to decide on the quantities of each
product to produce. The following data are available:
Cornflakes
Branflakes
Machine hours required per unit
1.00
0.50
Unit selling price
$2.50
$3.00
Unit variable cost
$1.50
$2.25
Required:
a)
Determine the units of each product that should be produced in order to maximize contribution margin.
400,000 units of Branflakes and 0 unit of Cornflakes should be produced to maximize CM.
b)
Because of market conditions, the company can sell no more than 150,000 packages of cornflakes and
300,000 boxes of branflakes.
Determine the optimal production mix, and the resulting contribution
margin.
The optimal production mix is 50,000 units of cornflakes and 300,000 units of branflakes. Since the CM
per machine hour is higher for branflakes, we will produce branflakes to their maximum capacity and
then produce cornflakes. The resulting contribution margin is $275,000.
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