Doggie Haven produces two models of outdoor pet pens: Deluxe and Super Duper req
ID: 332093 • Letter: D
Question
Doggie Haven produces two models of outdoor pet pens: Deluxe and Super Duper requiring the work center processing times and materials at the costs shown in the process diagram below. The price charged for a Deluxe model is $80 (demand is for 50 units per week). The price charged for a Super Duper model is $100 (and demand is for 60 units per week). Each work center is staffed by a worker who works only at that workstation and is paid $16 per hour. The plant operates 40 hours per week with no overtime. Overhead costs are $2000 per week. Answer each of the following questions:
a.) Using the traditional method, which bases decisions solely on a product’s contribution to profits and overhead, what is the optimal product mix?
b.) What is the overall profitability of the product mix calculated in item a above?
c.) Using the bottleneck-based method, what is the optimal product mix?
d.) What is the overall profitability of the product mix calculated in item c above?
DELUXE SUPER DUPER 15 minute:s Y 20 minutes Purchased Part $6/unit Y 15 minutes Z10 minutes Purchased Part S6/unit Z 30 minutes X30 minutes Raw Materials $9 Raw Materials $14;Explanation / Answer
Overhead costs per week - 2000
Labor charge /hour - 16
Deluxe
super deluxe
Demand
50
60
Price per unit
80
100
Raw materials
9
14
Purchased parst used in unit
6
6
First we find the bottle neck
workstation
time in minutes
Load from product Deluxe
time in minutes
Load from product super deluxe
Total load
X
15
50*15=750
20
60*20=1200
750+1200=1950
Y
15
50*15=750
10
60*10=600
750+600=1350
Z
30
50*30=1500
30
60*30=1800
1500+1800=3300
<--Bottle neck
Time taken for 1 unit
60
60
The station with the maximum aggregate load is bottle neck. Here it is Z
Traditional method
Deluxe
super deluxe
Labor charge per unit
16
16
(Each model takes 1 hour for producing 1 unit)
Traditional method
Deluxe
super deluxe
Price per unit
80
100
Raw materials
9
14
Purchased parts used in unit
6
6
Labor
16
16
Profit margin/unit
49
64
When ordering from highest to lowest, the profit margin per unit, order of these products is super deluxe and then deluxe
Plant operates only for 40 hours or 2400 minutes per week. So available capacity at each station is 2400 minutes per week
Step 1 we can meet the demand for 60 units of super deluxe with available capacity at bottle neck..this nsues 1800 minutes at bottle neck
Step 3 with remaining capacity- 600 minutes at bottle neck z, only 20 deluxe models can be made
Step 1
Step 2
Step 3
Step 4
Work station
Available Minutes at start
capacity used by super deluxe
Minutes available after making 60 Superdeluxe
capacity used by deluxe
Minutes available after making 20 deluxe
X
2400
60*20=1200
2400-1200=1200
20*15=300
1200-300=900
Y
2400
60*10=600
2400-600=1800
20*15=300
1800-300=1500
Z
2400
60*30=1800
2400-1800=600
20*30=600
600-600=0
Product mix according to traditional method=60 super deluxe and 20 deluxe
Profitability –traditional method
Revenue
60*100+20*80=
7600
-
Raw materials
60*14+20*9=
1020
Purcahsed parst used in unit
60*6+20*6=
480
Labor
60*16+20*16=
1280
Overhead costs
2000
$2,820
Bottleneck based approach
Deluxe
super deluxe
Profit margin per unit
49
64
Time at bottleneck, Z
30
30
Profit margin( per unit) per minute at bottleneck
49/30=$1.63
64/30=$2.13
When ordering from highest to lowest, the profit margin per minute at bottleneck, order of these products is deluxe and then super deluxe
Plant operates only for 40 hours or 2400 minutes per week. So available capacity at each station is 2400 minutes per week
Step 1 we can meet the demand for 50 units of deluxe with available capacity at bottle neck
Step 3 with remaining capacity at bottle neck z, only 30 super deluxe models can be made
Step 1
Step 2
Step 3
Step 4
Work station
Available Minutes at start
capacity used by deluxe
Minutes available after making deluxe
capacity used by Super deluxe
Minutes available after making Superdeluxe
X
2400
50*15=750
2400-750=1650
30*20=600
1650-600=1050
Y
2400
50*15=750
2400-750=1650
30*10=300
1650-300=1350
Z
2400
50*30=1500
2400-1500=900
30*30=900
900-900=0
Product mix according to bottle neck method=50 deluxe and 30 super deluxe
Profitability –Bottle neck based approach method
Revenue
50*50+30*60=
4300
Raw materials
50*9+30*14=
870
Purcahsed parst used in unit
50*6+30*6=
480
Labor
50*16+30*16=
1280
Overhead costs
2000
$-330
answer
Deluxe
super deluxe
Demand
50
60
Price per unit
80
100
Raw materials
9
14
Purchased parst used in unit
6
6
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