Question

A company makes three products that have the following characteristics:

• Product A sells for $75 but needs $50 of materials to produce. It requires 5 minutes on the bottleneck
• Product B sells for $90 but needs $60 of materials to produce. It also requires 5 minutes on the bottleneck.
• Product C sells for $110 but needs $70 of materials to produce. It requires 10 minutes on the bottleneck.

Using the traditional method, in what sequence should products be scheduled for production?

Answer 1

Using the data given in the question, we first compute the contribution of each of the three products.

For Product A: Given the selling price at $75 and the cost of materials to produce as $50. Therefore contribution per piece is equal to $75-$50 =$25.

Similarly, for Product B, the contribution is $90-$60 = $30 per piece and for Product C the contribution is $110-$70 = $40.

As per the given bottleneck times for each product, we now calculate contribution per bottleneck minute to determine the most profitable product.

For Product A, bottleneck time is 5 minutes, therefore, contribution per bottleneck minute is $25/5 = $5 per minute

Similarly for Product B it is $30/5 = $6 per minute and for Product C it is $40/10 = $4 per minute.

Therefore, as per the traditional method, it is most profitable to first schedule the products with the most profitability.

Hence, Product B ($6/minute) is scheduled first followed by Product A ($5/minute) and then lastly Product C ($4/minute).