Question

Parries Confectionery Company is considering the introduction of a new toffee. It requires four
processes: A, B, C, and D in sequence. The equipment required for each process is available in
the company now and is dedicated to the production of another type of candy. Although some
capacity is available on all the equipment types, management is not sure whether they need to
buy additional pieces. To aid management in decision making, the following information is
available:
(a) The four pieces of equipment—one for each type—are available 50% of the time.
(b) The company operates one shift per day (8 hours) and 250 days per year.

(c) If the company decides to produce toffee, then it must allocate half a day for candy production
and the remaining half day for toffee.
(d) The time required for equipment setup, cleaning, and maintenance and scrap rate (i.e.,
spillage, production items that do not meet shape and other quality standards and hence
must be discarded, etc.) for each process is given in Table 2.6.

Table 2.6 Production Data for Parries Confectionery:

	Process/Equipment
Time (in seconds)	A	B	C	D
Setup/maintenance/cleaning per setup	1800	2700	600	1000
Processing time per unit	25	4	2	4
Scrap rate(%)	10	5	1	1

(e) The demand for toffee is expected to be 1,000,000 per year. If 1,000,000 toffees are required
to be made per year, determine how many input and output units are required for each
process.
(f) Determine whether the company can produce the new toffee with the available equipment.
If not, how many pieces of each equipment must Parries purchase? Show your calculations.
(g) The company can operate half a second shift by using 15 employees who must be paid an
overtime salary of $20 per hour. The overhead expenses are estimated to be $10,000. It is
known that equipment for processes A, B, C, and D cost $50,000, $200,000, $100,000, and
$100,000, respectively. Is it better to operate the (half) second shift or purchase necessary
additional equipment. Explain your answer.

Pls Be clear especially (g)

Answer 1

Part 1:

Availability of Machines A, B, C & D per day = 50% of 8 hrs
= 4 Hrs = 14400 sec

Assuming setup is required once per shift, i.e., when the line switches from production of candy to toffee.

Toffee processing capacity of Machine i per day =
  [(Available of machine i - Setup time for i) / Processing time per unit for Machine i] * (1- Scrap rate of i)
  

Toffee processing capacity of Machine i per year = 250 * Toffee processing capacity of Machine i per day

Number of Machines i required = 1000000 / Toffee processing capacity of Machine i per year

	A	B	C	D
Toffee processing capacity per day	453.6	2778.75	6831	3316.5
Toffee processing capacity per year	113400	694687.5	1707750	829125
Number of Machines required	8.818342152	1.439496	0.585566	1.206091
Actual Number of Machines required	9	2	1	2
No. of Equipments to be purchased	8	1	0	1
Additional Cost to buy new equipment	400000	200000	0	100000	$ 700000

Part 2:If company operates half second shift

Availability of Machines A, B, C & D per day = 4+4 hrs = 8 hrs
= 28800 Sec

	A	B	C	D
Toffee processing capacity per day	972	6198.75	13959	6880.5
Toffee processing capacity per year	243000	1549688	3489750	1720125
Number of Machines required	4.115226337	0.645291	0.286553	0.581353
Actual Number of Machines required	5	1	1	1
No. of Equipments to be purchased	4	0	0	0

Cost of operation half second shift = Cost of labour at $ 20/hr for 15 employees for 250 days of 4 hr each + Overhead cost
  = (15 * 20 * 4 *250) + 10000
= $310000

Cost of equipment to be purchased (Machine A) = 4 * 50000
= $200000

Total additional cost for second shift = $310000 + $200000
= $510000

Since this is less than $700000 to be invested in new equipment if second shift is not operated, we should go with the option of running a second shift.

Note: This analysis is done without considering the cost advantages of additional equipments in subsequent years.
SInce investment in equipment is a capital expense, the benefits in cost are realised over a longer duration of time,
The decision toinvest would also depend upon the demand forecast in the future.