Production Decisions Under Bottleneck Operations Health Kick Cereal Company manu

Question

Production Decisions Under Bottleneck Operations Health Kick Cereal Company manufactures breakfast cereals. In response to consumer demand, the company wants to begin producing gluten-free cereals. In order to do this the company will have to separate the production of gluten-free cereals from other cereals. As part of the production process, finished cereal must be loaded into the appropriate sized bags utilizing a machine used for packagin gluten-free cereal cannot be used for any other product, the company is only willing to commit one packaging machine to be used in the gluten-free cereals. Based upon current union negotiation, the company is only allowed to run each packaging machine for a total of 12 hours dally -this provides a total of gluten-free cereal production is 43,200 seconds of processing time dalily. The total daily fixed cost of the $3,000 Marketing research indicates customers demanding gluten-free cereal will purchase boxes in the following sizes: a 10 ounce box; a 20 ounce box; and a 40 ounce box. Research also indicates that the company can sell as many boxes as it can manufacture in a day. Since the marketing information did not indicate whether customers prefer more of one bag size over another, the company plans to maximize production time of the dedicated packaging machine, utilizing all available 43,200 machine seconds each day, which will create a bottleneck in the packaging process. Using the information above and the additonal data below, complete assignments number 1-5 below Additional pata 10oz bag 20oz bag400g bag 10 S Unit selling price Unit variable cost Unit contribution margin 18 Packaging machine seconds per bag- seconds per be -- Since the unit contribution margin per bag produced is highest for the 40 oz bag, the company plans to go with the following level of daily production: Budgeted daily production of bags 200 400 4,020 1 What is the total daily net income the company will earn on gluten-free cereal if they manufacture the planned quantity of bags per day for each size? 2 Calculate the unit contribution margin per production bottleneck operating second for each bag. 3 Based upon your calculation above, which size bag should the company focus on producing?

Explanation / Answer

1. Statement showing calculation of Total daily income

2. Statement showing calculation of Contribution per seconds

3. Company should focus on producing more of 20 Oz Bags since its Contribution per second is higher as compared to others and it will give highest profit.

4. Statement of Daily Income if only i sized bag is produced

5. (a) Statement showing optimal no. of Bags

Explanation:

First of all we should make the minimum required quantities of each sized bags and after making such minimum number of quantities, remaning econds should be utilised to make the 20 Oz bags since it gives highest contribution per second.

(b) Statement showing daily income

Contribution from - 10 Oz Bags (200 x $2) $400 - 20 Oz Bags (400 x $3) $1200 - 40 Oz Bags (4020 x $5) $20100 Total Contibution $21700 Less: Fixed Cost $3000 Daily Net Income $18700

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