TOC Company produces two products, Y and Z that are processed in four department
ID: 2619578 • Letter: T
Question
TOC Company produces two products, Y and Z that are processed in four departments, A, B, C and D. Product Y requires three types of materials, M1, M2 and M4. Product Z requires two types of materials, M2 and M3. The company's production process is illustrated in the following graphic adapted from Ruhl's Exhibit I TOC Company's Production Process Product Y $450/U 100 U/Wk Product Z $500 50 U/Wk 15 min U RM4 $15/U 5 min U 15min? B. 15 min U 0 min RM1 $100/U RM2 $100VU RM3 $100U A dapted from Ruhl's Exhibit 1, JOCM page 17 Each department has 2,400 minutes of available time per week. The Company's operating expenses are $30,000 per week. Based on current demand, the company can sell 100 units of product Y and 50 units of product Z per week. Sales prices are $450 for product Y and $500 for product Z. All four materials are available in sufficient quantities. The needed workers are also available Required I. Determine the company's constraint. 2. Determine the throughput per unit for each product. 3. Determine the throughput per minute of the constrained resource for each product. 4. Determine the product mix needed to maximize throughput, i.e., the number of units of Y and Z that should be produced per week. 5. Determine the maximum net income per week for TOC Company. 6. Suppose the company broke the current constraint by doubling the capacity of that resource. What would become the new constraint?Explanation / Answer
1) Determine the company's constraint Department Time required for Product Y Time required for Product Z Total Time required per week A 15*100 50*10 2000 B 15*100 50*30 3000 C 15*100 50*5 1750 D 15*100 50*5 1750 Each department has 2400 minutes per week. Department B required 3000 minutes per week to produce product Y and product Z. Therefore Department B is the constraint as it does not have enough time 2) Determine the throughput per unit for each product Throughput = Sales price - Material costs Product Sales Price Material Costs Throughput Y 450 100+100+15=215 235 Z 500 100+100=200 300 3) Determine the throughput per minute of the constrained resource for each product Product Throughput per unit for Department B Throughput per minute Y 235/15 15.67 Z 300/30 10.00 4) Determine the product mix needed to maximize throughput i.e. the numberof unitsof Y and Z should be produced per week Maximizing the throughput requires producing the products which would give maximum throughput Product Y has the maximum throughput of 15.67 so we can product 100 units of product Y which will require time of 1500 minute of department B. The remaining time available for Department B =(2400-1500) = 900 minute can be use to utilise the product Z We can produce 900/30 = 30 units of product Z 5) Determine the maximum net income per week for TOC company Sales Product Y(100*450) 45000 Product Z(30*500) 15000 60000 Less: COGS Product Y(100*215) 21500 Product Z(30*200) 6000 27500 Throughput 32500 Less: Operating Expenses -30000 Net Income 2500 6) Doubling the capacity of Department B will allow to produce 60 units of product Z which would be more than the demand for product Z in the market, this would lead to unutilised capacity in all the departments. Here the external demand would be the constraint
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