Bmfp 3582 Manufacturing Economy (assignment-1)

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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? 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? ¾

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PRODUCT-A

RM 5

STEP-1 At workstation

STEP-2 At workstation

STEP-3 At workstation

(30minute)

(10minute)

(10minute)

V

Y

X

RM 5

PRODUCT-B

RM 5

STEP-3 At workstation

(10minute)

(20minute)

Y

X

PRODUCT-C

RM 2

Purchased Part

STEP-1 At workstation

RM 2

STEP-2 At workstation

STEP-3 At workstation

STEP-4 At workstation

(5 minute)

(5 minute)

(5 minute)

(5 minute)

Z

Product: B Price : RM 72/unit Demand: 80 unit/week

Purchased Part

STEP-1 At workstation

W

Product: A Price : RM 75/unit Demand: 60 unit/week

X

Y

Product: C Price : RM 45/unit Demand: 80 unit/week

Purchased Part

RM3

PRODUCT-D

RM 4

STEP-1 At workstation

STEP-2 At workstation

STEP-3 At workstation

(15minute)

(10minute)

(10minute)

W

Z

Y

RM 6

Product: D Price : RM 38/unit Demand: 100 unit/week

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)

Price Raw Material and Purchased parts Labor Profit Margin Time at Bottleneck

A 75 -10 -15 ?

B 72 -5 -9 ?

? minutes

?

Profit Margin per minute

? minutes

C 45 -5 -6 ? ?

D 38 -10 -9 ? ?

minutes

minutes

?

?

?

Tabel 2 Load from Product

Load from Product

Load from Product

Load from Product

Load from Product

V

A ?

B ?

C ?

D ?

E ?

W

?

?

?

?

?

X

?

?

?

?

?

Y

?

?

?

?

?

Z

?

?

?

?

?

Work Center

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 Center

Minutes at the Start 2,400

Minutes Left After Making 80B ?

Minutes Left After Making 60A ?

Can Only Make 40C ?

Can Still Make 100D ?

V W

2,400

?

?

?

?

X

2,400

?

?

?

?

Y

2,400

?

?

?

?

Z

2,400

?

?

?

?

Tabel 4 Revenue Material Labor

? ? (5 workers) X (8hours/day) X (5days/week) X (RM18/hour)

Overhead Profit = Revenue – Material – Labor - Overhead

- RM 3,600 - RM 8,500 ?

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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 Procurement cost/order Setup cost/setup Annual carrying cost/item/year

RM6.00 RM10.00 RM1.32

Production rate/year

RM5.90 RM50.00 RM1.30 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: Cost elements Fixed cost/year Variable cost/unit Purchase price/unit

Manufacturing the product by using process A (RM) 100000 75

Manufacturing the product by using process B (RM) 300000 70

Buy (RM)

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?