Atlas Inc. is a toy bicycle manufacturing company producing a five-inch small ve
ID: 351279 • Letter: A
Question
Atlas Inc. is a toy bicycle manufacturing company producing a five-inch small version of the bike that Lance Armstrong rode to win his first Tour de France. The assemblyline at Atlas Inc. consists of seven work stations, each performing a single step. Stations and processing times are summarized here: • Step 1 (30 sec.); The plastic tube for the frame is cut to size. • Step 2 (20 sec.): The tube is put together. • Step 3 (30 sec.): The frame is glued together • Step 4 (20 sec.): The frame is cleaned. · Step 5 (25 sec.): Paint is sprayed onto the frame. • Step 6 (45 sec.): Wheels are assembled. · Step 7 (35 sec.): All other parts are assembled to the frame. Under the current process layout, workers are allocated to the stations as shown here: • Worker 1: Steps 1, 2 • Worker 2: Steps 3, 4 • Worker 3: Step 5 • Worker 4: Step 6 • Worker 5: Step 7 Assume the workers are paid $10 per hour. Each bicycle is sold for $5 and includes parts that are sourced for $1.25. The company has fixed costs of $225 per hour. Despite Lance Armstrong's doping confession, there exists substantially more demand for the bicycle than Atlas can supply. Instructions: Carry at least 4 decimal places in all intermediate calculations and values. Round (only) your final answers to 2 decimal places. Negative amounts should be indicated by a minus sign. What is the cost of direct labor for the per unit a. bicycle? How much profit does the company make per b. hour? per hour What would be the profits per hour if Atlas would be able to source the parts 9% cheaper C. ($1.14 for the parts of one unit, but the fixed costs and productivity will remain same as before)? per hour What would be the profits per hour if Atlas d. would be able to reduce fixed costs by 10% (to $202.50 per hour)? per hour What would be the profits per hour if Atlas would be able to reduce the processing time at the bottleneck by 5 seconds per unit e. (assume unlimited demand, note that reducing the processing time may cause the bottleneck to shift to a different process or create multiple, identical bottlenecks)? per hourExplanation / Answer
(a)
The cost of direct labor = the total wages per hour / the flow rate
The flow rate will depend on the bottleneck resource which in this case in both Worker 1 and 2 having the cycle time of 50 sec. So, flow rate = 3600/50 = 72 cycles per hour
Total wages per hour = 5 workers x $10 per worker hour = $50 per hour
The cost of direct labor = 50 / 72 = $0.694 per unit
(b)
Production rate = 72 cycles per hour
Profit = Revenue - Part cost - Wages - Fixed cost = 72*5 - 72*1.25 - 10*5 - 225 = - $5.00 per hour
(c)
Production rate = 72 cycles per hour
Profit = Revenue - Part cost - Wages - Fixed cost = 72*5 - 72*1.14 - 10*5 - 225 = $2.92 per hour
(d)
Production rate = 72 cycles per hour
Profit = Revenue - Part cost - Wages - Fixed cost = 72*5 - 72*1.25 - 10*5 - 202.5 = $17.5 per hour
(e)
Then the cycle time of the bottleneck will be 45 sec (Worker 1,2, and 6). So,
Production rate = 3600 / 45 = 80 cyles per hour
Profit = Revenue - Part cost - Wages - Fixed cost = 80*5 - 80*1.25 - 10*5 - 225 = $25.0 per hour
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