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Chapter 20 EX.20.12 Question 1: Reorder Point Morrison Manufacturing produces casings for sewing machines: large and small. To produce the different casings, equipment must be set up. The setup cost per production run is $18,000 for either casing. The cost of carrying small casings in inventory is $6 per casing per year; the cost of large casings is $18 per unit per year. To satisfy demand, the company produces 2,400,000 small casings and 800,000 large casings. Assume the economic lot size for small casings is 120,000 and that of the large casings is 40,000. Morrison Manufacturing sells an average of 9,600 small casings per workday and an average of 3,200 large casings per workday. It takes Morrison two days to set up the equipment for small or large casings. Once set up, it takes three workdays to produce a batch of small casings and five days for large casings. There are 250 workdays available per year. Required: 1. What is the reorder point for small casings? small casings What is the reorder point for large casings? large casings 2. Using the economic order batch size, is it possible for Morrison to produce the amount that can be sold of each casing? Yes  Does scheduling have a role here? Yes  Is this a push- or pull-through system approach to inventory management? Push system  EX.20.16 Question 2: Product Mix Decision, Single Constraint Behar Company makes three types of stainless steel frying pans. Each of the three types of pans requires the use of a special machine that has total operating capacity of 172,300 hours per year. Information on each of the three products is as follows: Basic Standard Deluxe Selling price $12.90 $16.72 $31.16 Unit variable cost $7.42 $10.74 $13.08 Machine hours required 0.10 0.20 0.50 The marketing manager has determined that the company can sell all that it can produce of each of the three products. Required: 1. How many of each product should be sold to maximize the total contribution margin? If a product should not be produced at all, enter "0" for your answer. Number of basic units: Number of standard units: Number of deluxe units: What is the contribution margin per machine hour for each of these products? If required, round your answers to the nearest cent. Basic units: $ per machine hour Standard units: $ per machine hour Deluxe units: $ per machine hour What is the total contribution margin for this product mix? $ 2. Suppose that Behar can sell no more than 284,000 units of each type at the prices indicated. What product mix would you recommend? Number of basic units: Number of standard units: Number of deluxe units: What would be the total contribution margin? $ EX.20.17 Question 3: Drum-Buffer-Rope System Duckstein, Inc., manufactures two types of aspirin: plain and buffered. It sells all it produces. Recently, Duckstein implemented a TOC approach for its Fort Smith plant. One binding constraint was identified, and the optimal product mix was determined. The following diagram reflects the TOC outcome: Required: 1. What is the daily production rate? bottles of plain aspirin per day bottles of buffered aspirin per day Which process sets this rate? Tableting Process  2. How many days of buffer inventory is Duckstein carrying? Round your answer to one decimal place. day(s) How is this time buffer determined? The time required to correct the problems that interrupt production  3. Explain what the letters A, B, and C in the exhibit represent, and identify the role that each plays in the TOC system. A Rope  Ties the production rate of the constraint to the release of materials   B Time buffer  Used to protect throughput  C Drummer constraint  Sets the production rate  PR.20.23 Question 4: EOQ, Safety Stock, Lead Time, Batch Size, and JIT Bateman Company produces helmets for drivers of motorcycles. Helmets are produced in batches according to model and size. Although the setup and production time vary for each model, the smallest lead time is six days. The most popular model, Model HA2, takes two days for setup, and the production rate is 1,800 units per day. The expected annual demand for the model is 86,400 units. Demand for the model, however, can reach 108,000 units. The cost of carrying one HA2 helmet is $3 per unit. The setup cost is $14,400. Bateman chooses its batch size based on the economic order quantity criterion. Expected annual demand is used to compute the EOQ. Recently, Bateman has encountered some stiff competition—especially from foreign sources. Some of the foreign competitors have been able to produce and deliver the helmets to retailers in half the time it takes Bateman to produce. For example, a large retailer recently requested a delivery of 28,800 Model HA2 helmets with the stipulation that the helmets be delivered within seven working days. Bateman had 7,200 units of HA2 in stock. Bateman informed the potential customer that it could deliver 7,200 units immediately and the other 21,600 units in about 14 working days—with the possibility of interim partial orders being delivered. The customer declined the offer indicating that the total order had to be delivered within seven working days so that its stores could take advantage of some special local conditions. The customer expressed regret and indicated that it would accept the order from another competitor who could satisfy the time requirements. Required: 1. Calculate the optimal batch size for Model HA2 using the EOQ model. Round your answer to the nearest whole number if rounding is required. units Was Bateman's response to the customer right? Would it take the time indicated to produce the number of units wanted by the customer? Yes  2. Upon learning of the lost order, the marketing manager grumbled about Bateman's inventory policy, "We lost the order because we didn't have sufficient inventory. We need to carry more units in inventory to deal with unexpected orders like these." Do you agree or disagree? Agree  How much additional inventory would have been needed to meet the customer's requirements? additional units If it is common for the excess demand to occur from just a few very large orders during the year, will Bateman need to carry more inventory in order to meet the demand? Yes  3. Fenton Gray, the head of industrial engineering, reacted differently to the lost order: "Our problem is more complex than insufficient inventory. I know that our foreign competitors carry much less inventory than we do. What we need to do is decrease the lead time. I have been studying this problem, and my staff has found a way to reduce setup time for Model HA2 from two days to 1.5 hours. Using this new procedure, setup cost can be reduced to about $94. Also, by rearranging the plant layout for this product—creating what are called manufacturing cells—we can increase the production rate from 1,800 units per day to about 4,800 units per day. This is done simply by eliminating a lot of move time and waiting time—both non-value-added activities." Assume that there are eight hours available in each workday. Assume that the engineer's estimates are on target. Compute the new optimal batch size (using the EOQ formula). Round your answer to the nearest whole number. units What is the new lead time? Round your answer to one decimal place. hours Given this new information, would Bateman have been able to meet the customer's time requirements? Yes  4. Suppose that the setup time and cost are reduced to 0.5 hour and $10, respectively. What is the batch size now? Round your answer to the nearest whole number. units As setup time approaches zero and the setup cost becomes negligible, what does this imply? Assume, for example, that it takes five minutes to set up, and costs are about $0.864 per setup. Bateman can reduce inventories, and may even be able to produce on demand.  PR.20.28 Question 5: Identifying and Exploiting Constraints, Constraint Elevation Confer Company produces two different metal components used in medical equipment (Component X and Component Y). The company has three processes: molding, grinding, and finishing. In molding, molds are created, and molten metal is poured into the shell. Grinding removes the gates that allowed the molten metal to flow into the mold’s cavities. In finishing, rough edges caused by the grinders are removed by small, handheld pneumatic tools. In molding, the setup time is one hour. The other two processes have no setup time required. The demand for Component X is 670 units per day, and the demand for Component Y is 1,050 units per day. The minutes required per unit for each product are as follows: Minutes Required per Unit of Product Product Molding Grinding Finishing Component X     5       10        15         Component Y 10       15        20         The company operates one eight-hour shift. The molding process employs 22 workers (who each work eight hours). Two hours of their time, however, are used for setups (assuming both products are produced). The grinding process has sufficient equipment and workers to provide 414 grinding hours per shift. The Finishing Department is labor intensive and employs 71 workers, who each work eight hours per day. The only significant unit-level variable costs are materials and power. For Component X, the variable cost per unit is $43, and for Component Y, it is $51. Selling prices for X and Y are $88 and $113, respectively. Confer’s policy is to use two setups per day: an initial setup to produce all that is scheduled for Component X and a second setup (changeover) to produce all that is scheduled for Component Y. The amount scheduled does not necessarily correspond to each product’s daily demand. Required: 1. Calculate the time (in minutes) needed each day to meet the daily market demand for Component X and Component Y.   Net Time Required Molding minutes Grinding minutes Finishing minutes What is the major internal constraint facing Confer Company? Molding  2. Describe how Confer should exploit its major binding constraint. Specifically, identify the product mix that will maximize daily throughput.   Number of Units Produced Component X units Component Y units 3. Assume that manufacturing engineering has found a way to reduce the molding setup time from one hour to 10 minutes. How many units of Component X and Component Y would be produced?   Number of Units Produced Component X units Component Y units