Question

Bryan Inc. produces a specialty top-quality juice machine. The product, the JM50, requires four processes to be completed. Specifically, these processes are exterior construction, pulp filter insertion, painting, and packaging. Each function is performed at separate workstations with different completion ratios:

·       Exterior construction can manufacture 100,000 juicer exteriors per day.

·       Pulp filter insertion can install 25,000 filters every 6 hours.

·       Painting can decorate 3,000 juicers every half hour.

·       Packaging can package 5,000 juicers per hour.

Required:

a)     Determine the maximum amount of JM 50 machines Bryan Inc. can sell per month (assume an average of 30 days per month and 8 hours per day)?

b)     What function is the bottleneck?

c)     If the contribution margin per juicer is $30.00, would it be worthwhile to spend $5,000,000 to increase the capacity of the bottleneck function by 200,000 units? Show computations.

Answer 1

Requirement a:

Total number of hours per month:

Number of hours per day = 8 hours

Number of days in a month = 30 days

Total number of hours per month

= Number of hours per day * Number of days in a month

= 8 hours * 30 days

= 240 hours

Number of juicer exteriors that can be manufactured in a month:

Number of Juicer exteriors that can be manufactured in a day = 100000

Number of Juicer exteriors that can be manufactured in a month

= Number of Juicer exteriors that can be manufactured in a day * Number of days in a month

= 100000 Juicer exteriors * 30 days

= 3000000 Juicer exteriors

Number of filters that can be installed in a month:

Number of filters that can be installed in 6 hours = 25000 filters

Number of filters that can be installed in a month

= Number of filters that can be installed in 6 hours * Number of Hours in a month / 6

= 25000 filters * 240 / 6

= 1000000 filters

Number of juicers that can be decorated in a month:

Number of Juicers that can be decorated in a half hour = 3000 Juicers

Number of juicers that can be decorated in a month

= Number of Juicers that can be decorated in a half hour * 2 * Number of Hours in a month

= 3000 Juicers * 2 * 240

= 1440000 Juicers

Number of Juicers that can be packaged in a month:

Number of Juicers that can be packaged in a hour = 5000 Juicers

Number of Juicers that can be packaged in a month

= Number of Juicers that can be packaged in a hour * Number of hours in a month

= 5000 * 240

= 1200000 Juicers

Determination of Maximum amount of JM 50 Machines that can be sold per month:

Number of Juicer exteriors that can be manufactured in a month = 3000000

Number of filters that can be installed in a month = 1000000

Number of juicers that can be decorated in a month = 1440000

Number of Juicers that can be packaged in a month = 1200000

As all the four processes are to be completed,

Maximum amount of JM 50 Machines that can be sold per month = 1000000

Requirement b:

Since the installation of filters is minimum, the bottleneck function is Pulp Filter Insertion.

Requirement c:

Capacity of Bottleneck function i.e., Pulp Filter Insertion is 1000000 units

Capacity of Bottleneck Function that can be increased if $5000000 is spent = 200000 units

Contribution Margin per Juicer = $30

Total Contribution Margin that can be increased = 200000 * 30 = $6000000

Cost that is incurred = $5000000

Since the increased contribution margin is greater than that of cost, it is worthwhile to spend on increasing capacity of bottleneck function.