Canine Kennels Company (CKC) manufactures two different types of dog chew toys (

Question

Canine Kennels Company (CKC) manufactures two different types of dog chew toys (A and B, sold in 1,000-count boxes) that are manufactured and assembled an three ditferent workstations (W, X, and Y) using a smal-batch process (sce the figure below). Batch setup times are negligible. The flowchart denotes the path each product follows through the manufacturing process, and each product's prics, demand per weok, and procog8ing times per urit are indicered 88 well. Purcheaed pars and raw materiala consumed during production are represented by inverted triangles. CKC can make and sell up to the limi of its demand per week, no penalties are incurred for not being able to meet all the demand. Each workstation is staffed by a worker who is dedicated to work on that workstation alore and is paid S8 per hour. Total laber costs per week are fixed. Variable overhead costs are $3,5SO/week. The plant operates one 8-hour shift per day, or 40 hours/week Step 1 Station Vw (11 min) Step 2 WStation X Step 3 Station Y Product: A Price: $TOrunit Demand: 90 unitswk S4 Raw materials Purchasad Step 1 Station X (20 min) Step 2 Step 3 Station Y (10 min) Product: B Price: $85unit Demand: 85 unitslwk Station (14 min) Raw materials The sono management is co mod ith the e son capacity imitation, so they ant to accept the mix o on ers that ma mizes the com any s o t Tra nona y. K has util ed a method hereby decisions ne maon to produce as much the product with the h hes: cont ution margin a8 possbl up 10 the imof its demand oowed by the next highes con bution produc and Bo on until no more capacity is a aiable. Because capacty e im od ho sig te ope product mix e c ucial Troy Hendrix the ner y hired production 8 or, is an avid olo ero the theory of constraints philosophy and the bottleneck method for scheduling. He believes that profitability can indeed be improved if bottleneck resources are exploited so determine the product mix. a. What is the profit if the traditional contribution margin method is used for determining CKC's product mix? The proit with the traditional approach is sEnter your response rounded to the mearest whole number.)

Explanation / Answer

Traditional method

Step 1: Identify bottleneck resource

Workload of station W = Demand of product A*Time on product A = 80*11 + 85*14 = 2070 minutes per wk

Workload of station X = Demand of product A*Time on product A = 80*10 + 85*20 = 2500 minutes per wk

Workload of station Y = Demand of product A*Time on product A = 80*13 + 85*10 = 1890 minutes per wk

Available capacity per week = 40 hours * 60 minutes per hour = 2400 minutes

Workload of station X is more than the available capacity.

Therefore, X is the bottleneck.

Step 2: Find product with higher contribution margin

Contribution margin of product A = 70 - 3 - 4 = $ 63 per unit

Contribution margin of product B = 85 - 6 - 5 = $ 74 per unit

Product B gives higher contribution margin. Therefore, its production should be prioritized.

Step 3: Determine production mix

Time remaining on bottleneck station X after scheduling production of 85 units/wk of product B = 2400 - 85*20 = 700 minutes

Quantity of product A that can be produced in available time on station X = 700/10 = 70 units/wk

Optimal production mix is :

A = 70 units/wk

B = 85 units/wk

Profit with the traditional approach = Sum of total contribution margin from product A and B - labor cost - overhead cost = 70 units/wk of A * $ 63 per unit + 85 units.wk of B * $ 74 per unit - 3 workers * 40 hours per week * $ 8 per hour - $ 3500

=70*63+85*74-3*40*8-3500

= $ 6240 per week

Profit contribution without considering labor cost and overhead cost =70*63+85*74 = $ 10700 per week

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.