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 wart 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 packaging machine. With the cost of packaging machines at an all time high, and in light of the fact that the 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 daily- this provides a total of gluten-free cereal production is 43,200 seconds of processing time daily. The total daily fixed cost of the $ 3,000 Marketing research indicates customers demanding gluten-free cereal will purchase boxes in the following sizes: Marketing research indicates custormers demanding Bluten-free ereal vill purchase boxes in the following szes 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.

Explanation / Answer

Answer 1 Calculation of total daily net income 10oz bag 20oz bag 40oz bag Total Qty in nos. Rate per bag Total Qty in nos. Rate per bag Total Qty in nos. Rate per bag Total Revenue 200 6 1200 400 10 4000 4020 18 72360 77560 Less : Variable cost 4 800 7 2800 13 52260 55860 Contribution Margin 2 400 3 1200 5 20100 21700 Less Fixed cost 3000 Income from operation 18700 Answer 2 Contribution margin per production bottleneck operating second 10oz bag 20oz bag 40oz bag Contribution per unit in $ (A) 2 3 5 Packaging Machine seconds per bag (B) 5 5 10 Contribution margin per production bottleneck operating second (A / B) $0.40 $0.60 $0.50 Answer 3 Based on above calculation , company should focus on producing size 20oz bags Answer 4 10oz bag 20oz bag 40oz bag Total machine seconds daily 43200 43200 43200 Contribution margin per second 0.4 0.6 0.5 Total Contribution 17280 25920 21600 Less : Fixed cost 3000 3000 3000 Daily net income if daily only one size bag produced 14280 22920 18600 Answer 5a Calculation of optimal no.of bags daily 10oz bag 20oz bag 40oz bag Packaging Machine seconds per bag 5 5 10 Total production daily (no.of bags daily) 500 7140 500 Minutes used 2500 35700 5000 Answer 5b Calculation of total daily net income 10oz bag 20oz bag 40oz bag Total Qty in nos. Rate per bag Total Qty in nos. Rate per bag Total Qty in nos. Rate per bag Total Revenue 500 6 3000 7140 10 71400 500 18 9000 83400 Less : Variable cost 4 2000 7 49980 13 6500 58480 Contribution Margin 2 1000 3 21420 5 2500 24920 Less Fixed cost 3000 Income from operation 21920 Answer 5c 10oz bag 20oz bag 40oz bag Packaging Machine seconds per bag 5 5 10 Total production daily (no.of bags daily) 500 6140 1000 Minutes used 2500 30700 10000 20oz production = 6140 bags Calculation of total daily net income 10oz bag 20oz bag 40oz bag Total Qty in nos. Rate per bag Total Qty in nos. Rate per bag Total Qty in nos. Rate per bag Total Revenue 500 6 3000 6140 10 61400 1000 18 18000 82400 Less : Variable cost 4 2000 7 42980 13 13000 57980 Contribution Margin 2 1000 3 18420 5 5000 24420 Less Fixed cost 3000 Income from operation 21420 Net income would decrease by = $21920 - $21420 = $500

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