Exercise 4-50 Theory of Constraints (LO 4-5) CompDesk, Inc., makes a single mode

Question

Exercise 4-50 Theory of Constraints (LO 4-5) CompDesk, Inc., makes a single model of an ergonomic desk (with chair) for computer usage. The desk is manufactured in building 1, and the chair is manufactured in building 2. Monthly capacities and production levels are as follows: Building 1 (Desks) 400 400 500 400 Monthly capacity Monthly production The company will sell a desk only with a chair and can sell 500 desks per month. The units (desk with chair) sell for $270 each and have a variable cost of $115 each. Required: a. Is there a bottleneck at CompDesk in Building 1 or Building 2? Building 1 Building2

Explanation / Answer

a) building 1

Reason- the company will sell a desk only with a chair and can sell 500 desk per month that means also 500 chairs a month and because building 1 monthly capacity is only 400 desks which means 400 chairs & desks could be produced however we can sell 500 desks & chairs thus building 1(desks) is a bottleneck at compdesk. Inc.

b)

$27000

($270*100)

$18000

(given)

$13000

($115+$15)*100

b2) no compdesk inc should not produce the desks as it is resulting in net operating loss(done above) of $4000.

c-1)

$27000

(270*100)

$14000

(given)

$11500

(115*100)

c-2) yes, compdesk should add equipment and workers to building 1 as it is resulting in net operating profit of $1500.

Differential Revenue

$27000

($270*100)

Differential cost fixed

$18000

(given)

variable

$13000

($115+$15)*100

net differential operating loss $4000

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