Question

The Steelie Dan Company produces a component that is subsequently used in the aerospace industry. The component consists of three parts (A, B, and C) that are purchased from outside and cost 40, 35, and 15 cents per piece, respectively. Parts A and B are assembled first on assembly line 1, which produces 170 components per hour. Part C undergoes a drilling operation before being finally assembled with the output from assembly line 1. There are in total six drilling machines, but at present only three of them are operational. Each drilling machine drills part C at a rate of 70 parts per hour. In the final assembly, the output from assembly line 1 is assembled with the drilled part C. The final assembly line produces at a rate of 190 components per hour. At present, components are produced eight hours a day and five days a week. Management believes that if need arises, it can add a second shift of eight hours for the assembly lines. The cost of assemble labor is 30 cents per part for each assembly line; the cost of drilling labor is 10 cents per part. For drilling the cost of electricity is two cent per part. The total overhead cost has been calculated as $1,100 per week. The depreciation cost for equipment has been calculated as $30 per week.

a. Create a process flow diagram to determine the process capacity of the entire process.

b. Suppose a second shift of eight hours is run for assembly line 1 and the same is done for the final assembly line. In addition, four of the six drilling machines are made operational. The drilling machines, however, operate for just eight hours a day. What is the new process capacity (number of components produced per week)? Which of the three operations limits the capacity.

c. Management decides to run a second shift of eight hours for assembly line1 plus a second shift of only four hours for the final assembly line. Five of the six drilling machines operate for eight hours a day. What is the new capacity? Which of the three operations limits the capacity?

d. Determine the cost per unit output for questions (b) and (c). Item Calculation Cost Cost of part A Cost of part B Cost of part C Electricity Assembly 1 labor Final assembly labor Drilling labor Overhead Depreciation Total Cost Cost per unit = Item Calculation Cost Cost of part A Cost of part B Cost of part C Electricity Assembly 1 labor Final assembly labor Drilling labor Overhead Depreciation Total Cost per unit=

e. The product is sold at $3.00 per unit. Assume that the cost of a drilling machine (fixed cost) is $30,000 and the company produces 8,000 units per week. Assume that four drilling machines are used for production. If the company had an option to buy the same part at $3.00 per unit, what would be the break-even number of units?

Answer 1

Answer a.

Step A: First, we will create a process flow diagram, by following the below-mentioned substeps:

Step 1: First, draw a process flow diagram, as mentioned below:

This, is an easy to understand process flow diagram, that we drawn from the information given in the question. First, Part A and B are assembled at line 1 at the rate of 170 components / hour. Symultaneosly, Drilling workstation, with 3 machines, drills part C at the rate of 70 components/hour. Finally, All parts A, B, and C are assembled in Final Assembly workstation at the rate of 160 componets per hour.

Step 2: Process Capacity at Assembly Line 1=

= Components Processed Per Hour X Operating Hours Per Day X Shifts Per Day X No. of Days Per Week

Where Components processed per hour = 170 Components / Hour (As given in the question)

Operating Hours per day = 8 Hours / Day (As given in the question),

Shifts per day = 1 Shift / Day (As given in the question), and

No, of Days per Week = 5 Days / Week (As given in the question)

Hence, we get Process Capacity at Assembly Line 1 = 170 X 8 X 1 X 5 = 6800 Components Per Week

Step 3. Process Capacity at Drilling Operation =

= No. of Part C Drilled Per Hour X No. of Operational Machines X Operating Hours Per Day X No. of Days Per Week

Where No. of Part C Drilled Per Hour = 70 (As given in the question)

No. of Operational Machines = 3 (As given in the question)

Operating Hours Per Day = 8 (As given in the question)

No. of Days Per Week = 5

Hence, we get Process Capacity at Drilling Operation = 70 X 3 X 8 X 5 = 8400 Components Per Week

Step 4. Process Capacity at Final Assembly =

= Components Processed Per Hour X Operating Hours Per Day X Shifts Per Day X No. of Days Per Week

Where Components processed per hour = 190 Components / Hour (As given in the question)

Operating Hours per day = 8 Hours / Day (As given in the question),

Shifts per day = 1 Shift / Day (As given in the question), and

No, of Days per Week = 5 Days / Week (As given in the question)

Hence, we get Process Capacity at Final Assembly = 190 X 8 X 1 X 5 = 7600 Components Per Week

Hence, we note that the Assembly Line 1 is a bottleneck (Producing the least no. of components per week), which limits the overall process capacity to 6800 Components Per Week.

Answer b.

Step 1: New Process Capacity at Assembly Line 1=

= Components Processed Per Hour X Operating Hours Per Day X Shifts Per Day X No. of Days Per Week

Where Components processed per hour = 170 Components / Hour (As given in the question)

Operating Hours per day = 8 Hours / Day (As given in the question),

Shifts per day = 2 Shift / Day (As given in the question), and

No, of Days per Week = 5 Days / Week (As given in the question)

Hence, we get Process Capacity at Assembly Line 1 = 170 X 8 X 2 X 5 = 13600 Components Per Week

Step 2. New Process Capacity at Drilling Operation =

= No. of Part C Drilled Per Hour X No. of Operational Machines X Operating Hours Per Day X No. of Days Per Week

Where No. of Part C Drilled Per Hour = 70 (As given in the question)

No. of Operational Machines = 4 (As given in the question)

Operating Hours Per Day = 8 (As given in the question)

No. of Days Per Week = 5

Hence, we get Process Capacity at Drilling Operation = 70 X 4 X 8 X 5 = 11200 Components Per Week

Step 3. New Process Capacity at Final Assembly =

= Components Processed Per Hour X Operating Hours Per Day X Shifts Per Day X No. of Days Per Week

Where Components processed per hour = 190 Components / Hour (As given in the question)

Operating Hours per day = 8 Hours / Day (As given in the question),

Shifts per day = 2 Shift / Day (As given in the question), and

No, of Days per Week = 5 Days / Week (As given in the question)

Hence, we get Process Capacity at Final Assembly = 190 X 8 X 2 X 5 = 15200 Components Per Week

Conclusion: Hence, we note that the Drilling Operation is a bottleneck (Producing the least no. of components per week), which limits the overall process capacity to 11200 Components Per Week.

Answer c.

Step 1: New Process Capacity at Assembly Line 1=

= Components Processed Per Hour X Operating Hours Per Day X Shifts Per Day X No. of Days Per Week

Where Components processed per hour = 170 Components / Hour (As given in the question)

Operating Hours per day = 8 Hours / Day (As given in the question),

Shifts per day = 2 Shift / Day (As given in the question), and

No, of Days per Week = 5 Days / Week (As given in the question)

Hence, we get Process Capacity at Assembly Line 1 = 170 X 8 X 2 X 5 = 13600 Components Per Week

Step 2. New Process Capacity at Drilling Operation =

= No. of Part C Drilled Per Hour X No. of Operational Machines X Operating Hours Per Day X No. of Days Per Week

Where No. of Part C Drilled Per Hour = 70 (As given in the question)

No. of Operational Machines = 5 (As given in the question)

Operating Hours Per Day = 8 (As given in the question)

No. of Days Per Week = 5

Hence, we get Process Capacity at Drilling Operation = 70 X 5 X 8 X 5 = 14000 Components Per Week

Step 3. New Process Capacity at Final Assembly =

= Components Processed Per Hour X Operating Hours Per Day X No. of Days Per Week

Where Components processed per hour = 190 Components / Hour (As given in the question)

Operating Hours per day = 8 Hours for 1st Shift + 4 Hours for 2nd Shift = 12 Hours / Day, and

No, of Days per Week = 5 Days / Week (As given in the question)

Hence, we get Process Capacity at Final Assembly = 190 X 12 X 5 = 11400 Components Per Week

Conclusion: Hence, we note that the Final Assembly is a bottleneck (Producing the least no. of components per week), which limits the overall process capacity to 11400 Components Per Week.

Answer d. We will calculate the cost per unit for answers (b) and (c) as mentioned in the below table:

Calculations:
1. Overhead costs of 1100 $ are divided by the no. of units for each of the answer (b) and (c)

2. Depreciation cost of $ 30 / week is divided by the no. of units for each of the answer (b) and (c)

3. Electricity cost is taken as it is 0.02 $ as it's given cents per part

4. Labour cost per unit = 0.30 $ for Assembly Line 1 + 0.30 $ for Final Assembly + 0.10 $ for Drilling = 0.70 $ / Unit

Hence, the per-unit cost is 82.0893 Cents for Answer (b) and 81.9123 Cents for Answer (c)