
Concept explainers
a)
To draw: A process flow diagram and determine the processing capacity of the whole process.
Process capacity:
Process capacity is the maximum level of output can be possibly obtained through a specific machine of the production line.
a)

Explanation of Solution
Given information:
Hours = 8 per day
Days = 5 per week.
Cost of purchasing parts:
Part A = 40 cents per piece.
Part B = 35 cents per piece
Part C = 15 cents per piece.
Production output:
Assembly line 1 = 140 components per hour.
Operational drill machines = 3
Drilling Part C = 50 parts per hour.
Final assembly line = 160 components per hour.
Cost of production:
Assembly labor = 30 cents per part.
Drilling labor = 15 cents per part.
Cost of electricity = 1 cent per part.
Total overhead cost = $1,200 per week,
Process flow diagram:
Calculation of capacity:
The overall capacity of the process will be equal to the activity with the lowest individual capacity.
Hence, the capacity of the process is 5,600 units per week.
b)
To calculate: The new process capacity and identify the operation that limits the capacity.
b)

Explanation of Solution
Given information:
Hours = 16 per day
Days = 5 per week.
Number of shifts = 2 per day
Cost of purchasing parts:
Part A = 40 cents per piece.
Part B = 35 cents per piece
Part C = 15 cents per piece.
Production output:
Assembly line 1 = 140 components per hour.
Operational drill machines = 4
Drilling hours = 8 per day
Drilling Part C = 50 parts per hour.
Final assembly line = 160 components per hour.
Cost of production:
Assembly labor = 30 cents per part.
Drilling labor = 15 cents per part.
Cost of electricity = 1 cent per part.
Total overhead cost = $1,200 per week,
Depreciation cost for equipment = $30 per week
Calculation of capacity:
The overall capacity of the process will be equal to the activity with the lowest individual capacity. The capacity of the process is 8,000 units per week.
The drilling operation only works for 8 hours in a day limiting the overall capacity.
c)
To calculate: The new process capacity and identify the operation that limits the capacity.
c)

Explanation of Solution
Given information:
Hours for assembly line 1 = 16 per day
Hours of Final assembly line = 12 per day
Days = 5 per week.
Number of shifts = 2 per day
Cost of purchasing parts:
Part A = 40 cents per piece.
Part B = 35 cents per piece
Part C = 15 cents per piece.
Production output:
Assembly line 1 = 140 components per hour.
Operational drill machines = 5
Drilling hours = 8 per day
Drilling Part C = 50 parts per hour.
Final assembly line = 160 components per hour.
Cost of production:
Assembly labor = 30 cents per part.
Drilling labor = 15 cents per part.
Cost of electricity = 1 cent per part.
Total overhead cost = $1,200 per week,
Depreciation cost for equipment = $30 per week
Calculation of capacity:
The overall capacity of the process will be equal to the activity with the lowest individual capacity. The capacity of the process is 9,600 units per week.
The final assembly line only works for 4 hours in the second shift limiting the overall capacity.
d)
To calculate: The cost per unit for the previous two calculated capacities.
d)

Explanation of Solution
Given information:
Hours for assembly line 1 = 16 per day
Hours of Final assembly line = 12 per day
Days = 5 per week.
Number of shifts = 2 per day
Cost of purchasing parts:
Part A = 40 cents per piece.
Part B = 35 cents per piece
Part C = 15 cents per piece.
Production output:
Assembly line 1 = 140 components per hour.
Operational drill machines = 5
Drilling hours = 8 per day
Drilling Part C = 50 parts per hour.
Final assembly line = 160 components per hour.
Cost of production:
Assembly labor = 30 cents per part.
Drilling labor = 15 cents per part.
Cost of electricity = 1 cent per part.
Total overhead cost = $1,200 per week,
Depreciation cost for equipment = $30 per week
Calculation of cost per unit when the capacity is 8,000 and 9,600 units:
Formula:
e)
To calculate: The break-even number of units.
e)

Explanation of Solution
Given information:
Product selling price = $4 per unit.
Fixed cost per drilling machine = $30,000
Output per week = 8,000 parts
Number of drilling machines = 4
Product buying price = $3 per unit
Calculation of break-even number of units:
Let ‘x’ be the number of units each option will produce.
The cost of buying the unit becomes
When the firm decides to manufacture the part, it incurs a fixed for each of the drilling machines which will be:
The cost per unit for manufacturing as calculated before is $1.81.
Therefore the total cost of manufacturing the part is:
The total cost of buying and manufacturing is equated to each other to calculate the break-even units as shown below:
The break-even units are 100,840 units.
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Chapter 7 Solutions
Loose Leaf for Operations and Supply Chain Management
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