Haery

ASSIGNMENT-1 (Mode-A)
BMFP 3582 MANUFACTURING ECONOMY

Setrum Electronics manufacturers four unique products (A,B,C,D) that are fabricate and
assembled in five different workstations (V,W,X,Y, and Z) using a small batch process.
Each workstation is staffed by a worker who is dedicated to work a single shift per day on
his or her assigned workstation. Batch setup times are negligible. A flowchart denotes the
path each products follows through the manufacturing process as shown in Figure 1, where
each product’s price, demand per week, and processing times per unit are indicated as well.
Inverted triangles represent purchased pars and raw materials consumed per unit at different
workstations. Setrum can make and sell up to the limit of its demand per week, and no
penalties are incurred for not being able to meet all the demand.

The firm wants to satisfy as much of the product demand in a week as it can. Each week
consist of 2,400 minutes of available production time.

Senior management at Setrum Electronics want to improve profitability by accepting the

right set of orders, and collected some additional financial data. Each worker is paid RM 18
per our. Variable overhead costs are RM 8,500 per week. The plant operates one 8-hour
shift per day, or 40 hours each week. Currently, decisions are made to accepts as much of
the highest profit margin product as possible (up to the limit of its demand), followed by
the next highest profit margin product, and so until no more capacity is available. Because
the firm cannot satisfy all the demand, the product mix must be chosen carefully.
Takasimura, the newly hired production supervisor, is knowledgeable about the theory of
constraints and the bottleneck-based scheduling. He believes that profitability can indeed be
improved if bottleneck resources were exploited to determine the product mix.

Q1. Which of the five workstations V,W,X,Y, or Z has the highest total workload, profit,
and thus serves as the bottleneck for Setrum Elecronics? (based on the filling in Table 1, 2,
3,4)

Q2. What is the change in profits if, instead of the traditional method used by Setrum
Electronics, a bottleneck-based approach advocated by Takasimura is used to select the
product mixed?

¾ Select the best product mix according to the highest overall profit margin of
each product.(calculate the profit margin per unit of each product and the profit
margin/minute of processing time at bottleneck workstation ?).
¾ Select the best product mix according to the dollar profit margin per minute of
processing time at the bottleneck workstation?
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PRODUCT-A

STEP-1 STEP-2 STEP-3 Product: A

At workstation At workstation At workstation Price : RM 75/unit
RM 5 Demand: 60 unit/week
V Y X
(30minute) (10minute) (10minute)

RM 5 Purchased
Part
PRODUCT-B

STEP-1 STEP-3 Product: B

At workstation At workstation Price : RM 72/unit
RM 5 Demand: 80 unit/week
Y X
(10minute) (20minute)

RM 2 Purchased
Part
PRODUCT-C

STEP-1 STEP-2 STEP-3 STEP-4 Product: C

At workstation At workstation At workstation At workstation Price : RM 45/unit
RM 2 Demand: 80 unit/week
W Z X Y
(5 minute) (5 minute) (5 minute) (5 minute)

Purchased
RM3
Part

PRODUCT-D

STEP-1 STEP-2 STEP-3 Product: D

At workstation At workstation At workstation Price : RM 38/unit
RM 4 Demand: 100 unit/week
W Z Y
(15minute) (10minute) (10minute)

RM 6 Purchased
Part

Workstation X is the bottleneck for Strum Electronics because the aggregate workload at X
exceeds the aggregate workloads of workstations V,W,Y,and Z and the maximum
available capacity of 2,400 minutes per week.

Figure-1
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Tabel 1 (in RM)

A B C D
Price 75 72 45 38
Raw Material and Purchased parts -10 -5 -5 -10
Labor -15 -9 -6 -9
Profit Margin ? ? ? ?
Time at Bottleneck ? ? ? ?
minutes minutes minutes minutes
Profit Margin per minute ? ? ? ?

Tabel 2

Load from Load from Load from Load from Load from
Work
Product Product Product Product Product
Center
A B C D E
V ? ? ? ? ?
W ? ? ? ? ?
X ? ? ? ? ?
Y ? ? ? ? ?
Z ? ? ? ? ?

With allocate resources of work center V,W,X,Y,Z to the products which each demand
until the bottleneck resource (workstation ?) is encountered. Subtract minute away from
2,400 minutes available for each week at each stage as follow:

Tabel 3

Work Minutes at Minutes Left Minutes Left Can Only Can Still
Center the Start After Making After Making Make Make
80B 60A 40C 100D
V 2,400 ? ? ? ?
W 2,400 ? ? ? ?
X 2,400 ? ? ? ?
Y 2,400 ? ? ? ?
Z 2,400 ? ? ? ?

Tabel 4

Revenue ?
Material ?
(5 workers) X (8hours/day) X
Labor - RM 3,600
(5days/week) X (RM18/hour)
Overhead - RM 8,500
Profit = Revenue – Material – Labor - Overhead ?
 Haery

ASSIGNMENT-1 (Mode-B)
BMFP 3582 MANUFACTURING ECONOMY

1. An automobile company has extra capacity that can be used to produce gears that the
company has been buying for RM300 each. If the company makes gears, it will incur
material cost of RM90 per unit, labor costs of RM120 per unit, and variable overhead
costs of RM30 per unit. The annual fixed cost associated with the unused capacity is
RM240,000. Demand for next year is estimated at 4000 units.

a) Would it be profitable for the company to make the gears?

b) suppose the capacity could be used by another department for the production of some
agricultural equipment that would cover its fixed and variable cost and contribute
RM90000 to profit which would be more advantageous, gear production or agricultural
equipment production.

2. An item has an yearly demand of 1000 units. The different costs with regard to make
or buy are as follows. Determine the best option.
Buy Make
Item cost/unit RM6.00 RM5.90
Procurement cost/order RM10.00
Setup cost/setup RM50.00
Annual carrying cost/item/year RM1.32 RM1.30
Production rate/year 6000 units

3. A manufacturer of motor cycles buys side boxes at RM240 each. In case he makes it
himself, the fixed and variable cost would be RM3,000,000 and RM90 per side box
respectively. Should the manufacturer make or buy the side boxes if the demand is 2500
side boxes?

4. There are three alternatives available to meet the demand of a particular product. They
are as follows:

a) Manufacturing the product by using process A

b) Manufacturing the product by using process B
c) Buying the product

The details are as follows:

Manufacturing the Manufacturing the
Buy
product by using product by using
(RM)
Cost elements process A (RM) process B (RM)
Fixed cost/year 100000 300000
Variable cost/unit 75 70
Purchase price/unit 80
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The annual demand of the product is 10000 units.

A) Should the company make the product using process A or Process B or buy it?
b) At what annual volume should the company switch from buying to manufacturing the
product by using process A
c) At what annual volume should the company switch from process A to process B?