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USING OPERATIONS TO CREATE VALUE CHAPTER 23 wat nicometal forces could be at work that wa Want thould considor? What are the possible core competences of Wild West what weaknesses should it avoid or mitigate? 1. You are designing a grocery delivery business. Viu the In met your company will offer staples and frozen foods in a large metropolitan atend then deliver them within a cus tomer detined window of time. You plan to partner with ID major od stores in the area. What should be your competi live priorities and what capabilities do you want to develop in your core and support processes? Problems The OM Explorer and POM for Windows software is avail ble to all crudents nising the lit edition of this textbook. Go to betp://www.pearsonhighered.com/krajewski to download hire computer packages. If you purchased Myomlab, you also have access to Active Models software and significant help in do- ing the following problems. Check with your instructor on how best to use these resources. In many cases, the instructor wants you to understand how to do the calculations by hand. At the leam, the software provides a check on your calculations. When calculations are particularly complex and the goal is interpreting the results in making decision, the software entirely replaces the manual calculations, Addressing the Trends and Challenges in Operations Management 1. (Refer to Solved Problem 1.) Coach Boum Toulouse led the a. To achieve a 10 percent multifactor productivity improve- mig Red Herrings to several disappointing football seasons Only better recruiting will return the Big Red Herrings to ment by reducing materials costs only, by what percent- age must these costs be reduced? winning form. Because of the current state of the program. Boehring University fans are unlikely to support increases b. To achieve a 10 percent multifactor productivity improve in the S192 season ticket price. Improved recruitment will ment by reducing labor costs only, by what percentage increase overhead costs to $30,000 per class section from the must these costs be reduced? current $25,000 per class section. The university's budget C. To achieve a 10 percent multifactor productivity improve- plan is to cover recruitment costs by increasing the average ment by reducing overhead costs only, by what percent class site to 75 students. Labor costs will increase to $6,500 per age these costs be reduced? credit course. Material costs will be about $25 per student 4. At Symtecks, the output of a specific process is valued at $100 for each 3 credit course, Tuition will be $200 per semester per unit. The cost of labor is $50 per hour including benefits. credit which is supplemented by state support of $100 per The accounting department provided the following informa- semester credit tion about the process for the past four weeks: What is the multifactor productivity ratio? Compared to the result obtained in Solved Problem 1, did productivity Week 1 Week 2 Week 3 Week 4 increase or decrease for the course process? Units Produced 1.124 1,310 1,092 981 b. If instructors work an average of 20 hours per week for Labor ($) 12,735 14,842 10,603 9,526 16 weeks for each 3-credit class of 75 students, what is the labor productivity ratio? Material ($) 21,041 24,523 20,442 18,364 Suds and Duds Laundry washed and pressed the following Overhead ($) 8,992 10,480 8,736 7,848 numbers of dress shirts per week Week Work Crew Total Hours Shirts a. Use the multifactor productivity ratio to see whether re- cent process improvements had any effect and, if so, whe 1 Sud and Dud 24 68 the effect was noticeable. 2 Surt and Jud 46 130 b. Has labor productivity changed? Use the labor productiv- ity ratio to support your answer. 3 Sud, Dud, and Jud 62 152 Alyssa's Custom Cakes currently sells 5 birthday, 2 wedding Sud, Dud, and Jud 51 125 and 3 specialty cakes each month for $50, 5150, and 100 each, respectively. The cost of labor is $50 per hour includin 5 Dud and Jud 45 131 benefits. It takes 90 minutes to produce a birthday cake, 240 minutes to produce a wedding cake, and 60 minutes 3. Calculate the labor productivity ratio for each week. to produce a specialty cake. Alyssa's current multifactor 6. Explain the labor productivity pattern exhibited by the productivity ratio is 1.25. data a. Use the multifactor productivity ratio provided to calcu- White Tiger Electronics produces CD players using an late the average cost of the cakes produced. automated assembly line process. The standard cost of CD b. Calculate Alyssa's labor productivity ratio in dollars per players is $150 per unit (labor, $30; materials, $70; and over- hour for each type of cake. head. 550). The sales price is $300 per unit. 4 CHAPTER 1 USING OPERATIONS TO CREATE VALUE PROCESS BETA PROCESS ALPHA B A B A Product 60 30 50 Output (units $1,400 $1,000 $2,000 $1.200 Labor ($ $3,000 $1,400 $3,500 $2,500 Materials a. Which process, Alpha or Beta, is more productive? b. What conclusions can you draw from your analysis? c. Based solely on the labor productivity ratio, which cake should Alyssa try to sell the most? d. Based on your answer in part (a), is there a type of cake Alyssa should stop selling? 6. The Big Black Bird Company (BBBC) has a large order for special plastic-lined military uniforms to be used in an urgent military operation. Working the normal two shifts of 40 hours each per week, the BBBC production process usually produces 2,500 uniforms per week at a standard cost of $120 each. Sev- enty employees work the first shift and 30 employees work the second. The contract price is $200 per uniform. Because of the urgent need, BBBC is authorized to use around-the-clock pro- duction, 6 days per week. When each of the two shifts works 72 hours per week, production increases to 4,000 uniforms per week but at a cost of $144 each. a. Did the multifactor productivity ratio increase, decrease, or remain the same? If it changed, by what percentage did it change? b. Did the labor productivity ratio increase, decrease, or remain the same? If it changed, by what percentage did it change? c. Did weekly profits increase, decrease, or remain the same? 9. The Morning Brew Coffee Shop sells Regular, Cappuccino, and Vienna blends of coffee. The shop's current daily labor cost is $320, the equipment cost is $125, and the overhead cost is $225. Daily demands, along with selling price and ma. terial costs per beverage, are given below. Vienna Coffee Cappuccino Regular Coffee 350 100 150 Beverages sold $2.00 $3.00 $4.00 Price per beverage Material ($) $0.50 $0.75 $1.25 7. Mack's guitar fabrication shop produces low-cost, highly du- rable guitars for beginners. Typically, out of the 100 guitars that begin production each month, only 80 percent are considered good enough to sell. The other 20 percent are scrapped due to quality problems that are identified after they have completed the production process. Each guitar sells for $250. Because some of the production process is automated, each guitar only requires 10 labor hours. Each employee works an average 160 hours per month. Labor is paid at $10/hour, materials cost is $40/guitar, and overhead is 54.000. Harald Luckerbauer, the manager at Morning Brew Cof- fee Shop, would like to understand how adding Eiskaffee (a German coffee beverage of chilled coffee, milk, sweetener, and vanilla ice cream) will alter the shop's productivity. His market research shows that Elskaffee will bring in new cus- tomers and not cannibalize current demand. Assuming that the new equipment is purchased before Eiskaffee is added to the menu, Harald has developed new average daily demand and cost projections. The new equipment cost is $200, and the overhead cost is $350. Modified daily demands, as well as selling price and material costs per beverage for the new product line, are given below. Regular Vienna Coffee Can Coffee Eiskaffee 350 150 75 Beverages sold a. Calculate the labor and multifactor productivity ratios. b. After some study, the operations manager Darren Funk recommends three options to improve the company's multifactor productivity: (1) increase the sales price by 10 percent, (2) improve quality so that only 10 percent are defective, or (3) reduce labor, material, and overhead costs by 10 percent. Which option has the greatest impact on the multifactor productivity measure? 8. Mariah Enterprises makes a variety of consumer electronic products. Its camera manufacturing plant is considering choosing between two different processes, named Alpha and Beta, which can be used to make two component parts A and B. To make the correct decision, the managers would like to compare the labor and multifactor productivity of process Alpha with that of process Beta. The value of process output for component A and B are $175 and $140 per unit, respectively. The corresponding overhead costs are $6,000 and $5,000, respectively. Price per beverage $2.00 $3.00 $4.00 $5.00 Material $) $0.50 557 $1.25 $1.50 a. Calculate the change in labor and multifactor productivity if Eiskaffee is added to the menu. b. If everything else remains unchanged, how many units of Eiskaffee would have to be sold to ensure that the multi- factor productivity increases from its current level? 401 to $6,500 per Hal costs will be about $25 per student 3-credit 4. semester credit for each 3-credit course. Tuition will be $200 per semester credit, which is supplemented by state support of $100 per a. What is the multifactor productivity ratio? Compared to the result obtained in Solved Problem 1, did productivity increase or decrease for the course process? b. If instructors work an average of 20 hours per week for 16 weeks for each 3-credit class of 75 students, what is the labor productivity ratio? Suds and Duds Laundry washed and pressed the following numbers of dress shirts per week. 2. Week Work Crew Total Hours Shirts 1 Sud and Dud 24 68 2 Sud and Jud 46 130 3 3 Sud, Dud, and Jud 62 152 4 Sud, Dud, and Jud 51 125 5 Dud and Jud 45 131 a. Calculate the labor productivity ratio for each week. b. Explain the labor productivity pattern exhibited by the data. 3. White Tiger Electronics produces CD players using an automated assembly line process. The standard cost of CD players is $150 per urit labor, $30; materials, $70; and over- head, $50). The sales price is $300 per unit. 28 CHAPTER 1 USING OPERATIONS TO CREATE VALUE manufacturing and distribution presences there. As you can imagine, means operations managers must think about how to grow the current supply chain beyond the boundaries of existing domestic and International orders additional expansion is to occur. enough energy to completely run the plant as well as the headquarters build ing nearby. The 850 million colored pencils produced each year only use reforested wood, with one tree planted for every tree harvested. Sourcing for paraffin wax used in crayons recently moved from Louisiana to western Pennsylvania, saving 5,000 barrels of oil annually related to wax transporta tion. All plastic components are made with recycled plastics. And any excess wax from the production of crayons is reintroduced into the manufacturing process so no waste is produced, The company is aggressively pursuing new markets outside the United States China's market of children ages 0-14 is larger than all the other global markets combined with more than half the world's child population Yet only 14 percent of the company's total sales come from international markets. So, particular attention is being devoted to growing the company's priorities in Table 1.3 QUESTIONS 1. Map Crayola's five pillars of operational leadership to the competitive 2. Create an assessment of Crayola's competitive priorities as it relates to their Asian expansion plans 3. Which of the competitive priorities might present the biggest challenge to Crayola as it expands internationally? CASE Chad's Creative Concepts Chad's Creative Concepts designs and manufactures wood furniture Founded by Chad Thomas on the banks of Lake Erie in Sandusky, Ohio, the company began by producing custom-made wooden furniture for vacation cabins located along the coast of Lake Erie and on nearby Kelly's Island and Bass Island. Being an outdoors" type himself, Thomas originally wanted to bring a bit of the outdoors" inside. Chad's Creative Concepts developed a solid reputation for creative designs and high-quality workmanship. Sales eventually encompassed the entire Great Lakes region. Along with growth came additional opportunities Traditionally, the company focused entirely on custom-made furniture, with the customer specifying the kind of wood from which the piece would be made. As the company's reputation grew and sales increased, the sales force began selling some of the more popular pieces to retail furniture outlets. This move into retail outlets led Chad's Creative Concepts into the production of a more standard line of furniture Buyers of this line were much more price sen- sitive and imposed more stringent delivery requirements than did clients for the custom line. Custom-designed furniture, however, continued to dominate sales, accounting for 60 percent of volume and 75 percent of dollar sales Currently, the company operates a single manufacturing process in Sandusky where both custom furniture and standard furniture are manufactured. The equipment is mainly general purpose in nature to provide the flexibility needed for producing custom pleces of furniture. The layout puts together saws in one section of the facility, lathes in another, and so on. The quality of the finishod product reflects the quality of the wood chosen and the craftsmanship of dividual workers. Both custom and standard tumiture compete for processing time on the same equipment by the same craftspeople During the past few months, sales of the standard line steadily creased, leading to more regular scheduling of this product line. However when scheduling trade-offs had to be made, custom furniture was always given priority because of its higher sales and profit margins. Thus, scheduled lots of standard furniture pieces were left sitting around the plant in various stages of completion As he reviews the progress of Chad's Creative Concepts, Thomasis pleased to note that the company has grown. Sales of custom furniture re main strong and sales of standard pleces are steadily increasing. However, finance and accounting indicate that profits are not what they should be Costs associated with the standard line are rising. Dollars are being tied up in Inventory, both in raw materials and work in process Expensive public ware- house space has to be rented to accommodate the inventory volume. Thomas also is concerned with increased lead times for both custom and standard orders, which are causing longer promised delivery times. Capacity is being pushed, and no space is left in the plant for expansion. Thomas begins a careful assessment of the overall impact that the new standard line is having on his manufacturing process EESTIONS 1. Wildtynes of decisions must Chad Thomas make daily for his com- contion to run effectively Over the long run? 2 How to cover allect operations when they began to sell eu? Woman to ucini standard fumiture affected the com- har Van Gaas Thomas have done differently to avoid some of the Teshe now foces? Source: This case was prepared by Dr. Brooke Saladin, Wake Forest University as a basis for classroom discussion Copyright © Brooke Saladin Reprinted by permission. 62 152 51 125 5 131 or each week. -xhibited by the las labor productivity changed? Use the labor productiv ity ratio to support your answer. 5. Alyssa's Custom Cakes currently sells 5 birthday, 2 wedding, and 3 specialty cakes each month for $50, $150, and $100 each, respectively. The cost of labor is $50 per hour including benefits. It takes 90 minutes to produce a birthday cake, 240 minutes to produce a wedding cake, and 60 minutes to produce a specialty cake. Alyssa's current multifactor productivity ratio is 1.25. a. Use the multifactor productivity ratio provided to calcu- late the average cost of the cakes produced. b. Calculate Alyssa's labor productivity ratio in dollars per hour for each type of cake. 's using an lard cost of CD 5, $70; and over- orders, which are cause pushed, and no space is left in the plant for expa careful assessment of the overall impact that the new standard line is having on his manufacturing process. single me Decision A decisic decision pieces to retail furniture outlets. This we Concepts into the production of a this line were much more price-sen- y requirements than did clients for Fe, however, continued to dominate be and 75 percent of dollar sales. anufacturing process in Sandusky, furniture are manufactured. The re to provide the flexibility needed layout puts together saws in one so on. The quality of the finished en and the craftsmanship of in- QUESTIONS 1. What types of decisions must Chad Thomas make daily for his com- pany's operations to run effectively? Over the long run? 2. How did sales and marketing affect operations when they began to sell standard pieces to retail outlets? 3. How has the move to producing standard furniture affected the com- pany's financial structure? umiture compete for processing espeople. che standard line steadily in- of this product line. However, Break-E To evaluate a determiningt quantity is th break-even a at which two 4. What might Chad Thomas have done differently to avoid some of the problems he now faces? En, Wake Forest University, as a basis for classroom discussion. Copyright © Brooke Saladin. Reprinted by permission. LEARNIN 28 CHAPTER 1 USING OPERATIONS TO CREATE VALUE manufacturing and distribution presences there. As you can imagine, means operations managers must think about how to grow the current supply chain beyond the boundaries of existing domestic and International orders additional expansion is to occur. enough energy to completely run the plant as well as the headquarters build ing nearby. The 850 million colored pencils produced each year only use reforested wood, with one tree planted for every tree harvested. Sourcing for paraffin wax used in crayons recently moved from Louisiana to western Pennsylvania, saving 5,000 barrels of oil annually related to wax transporta tion. All plastic components are made with recycled plastics. And any excess wax from the production of crayons is reintroduced into the manufacturing process so no waste is produced, The company is aggressively pursuing new markets outside the United States China's market of children ages 0-14 is larger than all the other global markets combined with more than half the world's child population Yet only 14 percent of the company's total sales come from international markets. So, particular attention is being devoted to growing the company's priorities in Table 1.3 QUESTIONS 1. Map Crayola's five pillars of operational leadership to the competitive 2. Create an assessment of Crayola's competitive priorities as it relates to their Asian expansion plans 3. Which of the competitive priorities might present the biggest challenge to Crayola as it expands internationally? CASE Chad's Creative Concepts Chad's Creative Concepts designs and manufactures wood furniture Founded by Chad Thomas on the banks of Lake Erie in Sandusky, Ohio, the company began by producing custom-made wooden furniture for vacation cabins located along the coast of Lake Erie and on nearby Kelly's Island and Bass Island. Being an outdoors" type himself, Thomas originally wanted to bring a bit of the outdoors" inside. Chad's Creative Concepts developed a solid reputation for creative designs and high-quality workmanship. Sales eventually encompassed the entire Great Lakes region. Along with growth came additional opportunities Traditionally, the company focused entirely on custom-made furniture, with the customer specifying the kind of wood from which the piece would be made. As the company's reputation grew and sales increased, the sales force began selling some of the more popular pieces to retail furniture outlets. This move into retail outlets led Chad's Creative Concepts into the production of a more standard line of furniture Buyers of this line were much more price sen- sitive and imposed more stringent delivery requirements than did clients for the custom line. Custom-designed furniture, however, continued to dominate sales, accounting for 60 percent of volume and 75 percent of dollar sales Currently, the company operates a single manufacturing process in Sandusky where both custom furniture and standard furniture are manufactured. The equipment is mainly general purpose in nature to provide the flexibility needed for producing custom pleces of furniture. The layout puts together saws in one section of the facility, lathes in another, and so on. The quality of the finishod product reflects the quality of the wood chosen and the craftsmanship of dividual workers. Both custom and standard tumiture compete for processing time on the same equipment by the same craftspeople During the past few months, sales of the standard line steadily creased, leading to more regular scheduling of this product line. However when scheduling trade-offs had to be made, custom furniture was always given priority because of its higher sales and profit margins. Thus, scheduled lots of standard furniture pieces were left sitting around the plant in various stages of completion As he reviews the progress of Chad's Creative Concepts, Thomasis pleased to note that the company has grown. Sales of custom furniture re main strong and sales of standard pleces are steadily increasing. However, finance and accounting indicate that profits are not what they should be Costs associated with the standard line are rising. Dollars are being tied up in Inventory, both in raw materials and work in process Expensive public ware- house space has to be rented to accommodate the inventory volume. Thomas also is concerned with increased lead times for both custom and standard orders, which are causing longer promised delivery times. Capacity is being pushed, and no space is left in the plant for expansion. Thomas begins a careful assessment of the overall impact that the new standard line is having on his manufacturing process EESTIONS 1. Wildtynes of decisions must Chad Thomas make daily for his com- contion to run effectively Over the long run? 2 How to cover allect operations when they began to sell eu? Woman to ucini standard fumiture affected the com- har Van Gaas Thomas have done differently to avoid some of the Teshe now foces? Source: This case was prepared by Dr. Brooke Saladin, Wake Forest University as a basis for classroom discussion Copyright © Brooke Saladin Reprinted by permission. CHAPTER 1 USING OPERATIONS TO CREATE VALUE PROCESS BETA PROCESS ALPHA B A B A Product 60 30 50 Output (units $1,400 $1,000 $2,000 $1.200 Labor ($ $3,000 $1,400 $3,500 $2,500 Materials a. Which process, Alpha or Beta, is more productive? b. What conclusions can you draw from your analysis? c. Based solely on the labor productivity ratio, which cake should Alyssa try to sell the most? d. Based on your answer in part (a), is there a type of cake Alyssa should stop selling? 6. The Big Black Bird Company (BBBC) has a large order for special plastic-lined military uniforms to be used in an urgent military operation. Working the normal two shifts of 40 hours each per week, the BBBC production process usually produces 2,500 uniforms per week at a standard cost of $120 each. Sev- enty employees work the first shift and 30 employees work the second. The contract price is $200 per uniform. Because of the urgent need, BBBC is authorized to use around-the-clock pro- duction, 6 days per week. When each of the two shifts works 72 hours per week, production increases to 4,000 uniforms per week but at a cost of $144 each. a. Did the multifactor productivity ratio increase, decrease, or remain the same? If it changed, by what percentage did it change? b. Did the labor productivity ratio increase, decrease, or remain the same? If it changed, by what percentage did it change? c. Did weekly profits increase, decrease, or remain the same? 9. The Morning Brew Coffee Shop sells Regular, Cappuccino, and Vienna blends of coffee. The shop's current daily labor cost is $320, the equipment cost is $125, and the overhead cost is $225. Daily demands, along with selling price and ma. terial costs per beverage, are given below. Vienna Coffee Cappuccino Regular Coffee 350 100 150 Beverages sold $2.00 $3.00 $4.00 Price per beverage Material ($) $0.50 $0.75 $1.25 7. Mack's guitar fabrication shop produces low-cost, highly du- rable guitars for beginners. Typically, out of the 100 guitars that begin production each month, only 80 percent are considered good enough to sell. The other 20 percent are scrapped due to quality problems that are identified after they have completed the production process. Each guitar sells for $250. Because some of the production process is automated, each guitar only requires 10 labor hours. Each employee works an average 160 hours per month. Labor is paid at $10/hour, materials cost is $40/guitar, and overhead is 54.000. Harald Luckerbauer, the manager at Morning Brew Cof- fee Shop, would like to understand how adding Eiskaffee (a German coffee beverage of chilled coffee, milk, sweetener, and vanilla ice cream) will alter the shop's productivity. His market research shows that Elskaffee will bring in new cus- tomers and not cannibalize current demand. Assuming that the new equipment is purchased before Eiskaffee is added to the menu, Harald has developed new average daily demand and cost projections. The new equipment cost is $200, and the overhead cost is $350. Modified daily demands, as well as selling price and material costs per beverage for the new product line, are given below. Regular Vienna Coffee Can Coffee Eiskaffee 350 150 75 Beverages sold a. Calculate the labor and multifactor productivity ratios. b. After some study, the operations manager Darren Funk recommends three options to improve the company's multifactor productivity: (1) increase the sales price by 10 percent, (2) improve quality so that only 10 percent are defective, or (3) reduce labor, material, and overhead costs by 10 percent. Which option has the greatest impact on the multifactor productivity measure? 8. Mariah Enterprises makes a variety of consumer electronic products. Its camera manufacturing plant is considering choosing between two different processes, named Alpha and Beta, which can be used to make two component parts A and B. To make the correct decision, the managers would like to compare the labor and multifactor productivity of process Alpha with that of process Beta. The value of process output for component A and B are $175 and $140 per unit, respectively. The corresponding overhead costs are $6,000 and $5,000, respectively. Price per beverage $2.00 $3.00 $4.00 $5.00 Material $) $0.50 557 $1.25 $1.50 a. Calculate the change in labor and multifactor productivity if Eiskaffee is added to the menu. b. If everything else remains unchanged, how many units of Eiskaffee would have to be sold to ensure that the multi- factor productivity increases from its current level? 401 USING OPERATIONS TO CREATE VALUE CHAPTER 23 wat nicometal forces could be at work that wa Want thould considor? What are the possible core competences of Wild West what weaknesses should it avoid or mitigate? 1. You are designing a grocery delivery business. Viu the In met your company will offer staples and frozen foods in a large metropolitan atend then deliver them within a cus tomer detined window of time. You plan to partner with ID major od stores in the area. What should be your competi live priorities and what capabilities do you want to develop in your core and support processes? Problems The OM Explorer and POM for Windows software is avail ble to all crudents nising the lit edition of this textbook. Go to betp://www.pearsonhighered.com/krajewski to download hire computer packages. If you purchased Myomlab, you also have access to Active Models software and significant help in do- ing the following problems. Check with your instructor on how best to use these resources. In many cases, the instructor wants you to understand how to do the calculations by hand. At the leam, the software provides a check on your calculations. When calculations are particularly complex and the goal is interpreting the results in making decision, the software entirely replaces the manual calculations, Addressing the Trends and Challenges in Operations Management 1. (Refer to Solved Problem 1.) Coach Boum Toulouse led the a. To achieve a 10 percent multifactor productivity improve- mig Red Herrings to several disappointing football seasons Only better recruiting will return the Big Red Herrings to ment by reducing materials costs only, by what percent- age must these costs be reduced? winning form. Because of the current state of the program. Boehring University fans are unlikely to support increases b. To achieve a 10 percent multifactor productivity improve in the S192 season ticket price. Improved recruitment will ment by reducing labor costs only, by what percentage increase overhead costs to $30,000 per class section from the must these costs be reduced? current $25,000 per class section. The university's budget C. To achieve a 10 percent multifactor productivity improve- plan is to cover recruitment costs by increasing the average ment by reducing overhead costs only, by what percent class site to 75 students. Labor costs will increase to $6,500 per age these costs be reduced? credit course. Material costs will be about $25 per student 4. At Symtecks, the output of a specific process is valued at $100 for each 3 credit course, Tuition will be $200 per semester per unit. The cost of labor is $50 per hour including benefits. credit which is supplemented by state support of $100 per The accounting department provided the following informa- semester credit tion about the process for the past four weeks: What is the multifactor productivity ratio? Compared to the result obtained in Solved Problem 1, did productivity Week 1 Week 2 Week 3 Week 4 increase or decrease for the course process? Units Produced 1.124 1,310 1,092 981 b. If instructors work an average of 20 hours per week for Labor ($) 12,735 14,842 10,603 9,526 16 weeks for each 3-credit class of 75 students, what is the labor productivity ratio? Material ($) 21,041 24,523 20,442 18,364 Suds and Duds Laundry washed and pressed the following Overhead ($) 8,992 10,480 8,736 7,848 numbers of dress shirts per week Week Work Crew Total Hours Shirts a. Use the multifactor productivity ratio to see whether re- cent process improvements had any effect and, if so, whe 1 Sud and Dud 24 68 the effect was noticeable. 2 Surt and Jud 46 130 b. Has labor productivity changed? Use the labor productiv- ity ratio to support your answer. 3 Sud, Dud, and Jud 62 152 Alyssa's Custom Cakes currently sells 5 birthday, 2 wedding Sud, Dud, and Jud 51 125 and 3 specialty cakes each month for $50, 5150, and 100 each, respectively. The cost of labor is $50 per hour includin 5 Dud and Jud 45 131 benefits. It takes 90 minutes to produce a birthday cake, 240 minutes to produce a wedding cake, and 60 minutes 3. Calculate the labor productivity ratio for each week. to produce a specialty cake. Alyssa's current multifactor 6. Explain the labor productivity pattern exhibited by the productivity ratio is 1.25. data a. Use the multifactor productivity ratio provided to calcu- White Tiger Electronics produces CD players using an late the average cost of the cakes produced. automated assembly line process. The standard cost of CD b. Calculate Alyssa's labor productivity ratio in dollars per players is $150 per unit (labor, $30; materials, $70; and over- hour for each type of cake. head. 550). The sales price is $300 per unit. 4 USING OPERATIONS TO CREATE VALUE CHAPTER 23 wat nicometal forces could be at work that wa Want thould considor? What are the possible core competences of Wild West what weaknesses should it avoid or mitigate? 1. You are designing a grocery delivery business. Viu the In met your company will offer staples and frozen foods in a large metropolitan atend then deliver them within a cus tomer detined window of time. You plan to partner with ID major od stores in the area. What should be your competi live priorities and what capabilities do you want to develop in your core and support processes? Problems The OM Explorer and POM for Windows software is avail ble to all crudents nising the lit edition of this textbook. Go to betp://www.pearsonhighered.com/krajewski to download hire computer packages. If you purchased Myomlab, you also have access to Active Models software and significant help in do- ing the following problems. Check with your instructor on how best to use these resources. In many cases, the instructor wants you to understand how to do the calculations by hand. At the leam, the software provides a check on your calculations. When calculations are particularly complex and the goal is interpreting the results in making decision, the software entirely replaces the manual calculations, Addressing the Trends and Challenges in Operations Management 1. (Refer to Solved Problem 1.) Coach Boum Toulouse led the a. To achieve a 10 percent multifactor productivity improve- mig Red Herrings to several disappointing football seasons Only better recruiting will return the Big Red Herrings to ment by reducing materials costs only, by what percent- age must these costs be reduced? winning form. Because of the current state of the program. Boehring University fans are unlikely to support increases b. To achieve a 10 percent multifactor productivity improve in the S192 season ticket price. Improved recruitment will ment by reducing labor costs only, by what percentage increase overhead costs to $30,000 per class section from the must these costs be reduced? current $25,000 per class section. The university's budget C. To achieve a 10 percent multifactor productivity improve- plan is to cover recruitment costs by increasing the average ment by reducing overhead costs only, by what percent class site to 75 students. Labor costs will increase to $6,500 per age these costs be reduced? credit course. Material costs will be about $25 per student 4. At Symtecks, the output of a specific process is valued at $100 for each 3 credit course, Tuition will be $200 per semester per unit. The cost of labor is $50 per hour including benefits. credit which is supplemented by state support of $100 per The accounting department provided the following informa- semester credit tion about the process for the past four weeks: What is the multifactor productivity ratio? Compared to the result obtained in Solved Problem 1, did productivity Week 1 Week 2 Week 3 Week 4 increase or decrease for the course process? Units Produced 1.124 1,310 1,092 981 b. If instructors work an average of 20 hours per week for Labor ($) 12,735 14,842 10,603 9,526 16 weeks for each 3-credit class of 75 students, what is the labor productivity ratio? Material ($) 21,041 24,523 20,442 18,364 Suds and Duds Laundry washed and pressed the following Overhead ($) 8,992 10,480 8,736 7,848 numbers of dress shirts per week Week Work Crew Total Hours Shirts a. Use the multifactor productivity ratio to see whether re- cent process improvements had any effect and, if so, whe 1 Sud and Dud 24 68 the effect was noticeable. 2 Surt and Jud 46 130 b. Has labor productivity changed? Use the labor productiv- ity ratio to support your answer. 3 Sud, Dud, and Jud 62 152 Alyssa's Custom Cakes currently sells 5 birthday, 2 wedding Sud, Dud, and Jud 51 125 and 3 specialty cakes each month for $50, 5150, and 100 each, respectively. The cost of labor is $50 per hour includin 5 Dud and Jud 45 131 benefits. It takes 90 minutes to produce a birthday cake, 240 minutes to produce a wedding cake, and 60 minutes 3. Calculate the labor productivity ratio for each week. to produce a specialty cake. Alyssa's current multifactor 6. Explain the labor productivity pattern exhibited by the productivity ratio is 1.25. data a. Use the multifactor productivity ratio provided to calcu- White Tiger Electronics produces CD players using an late the average cost of the cakes produced. automated assembly line process. The standard cost of CD b. Calculate Alyssa's labor productivity ratio in dollars per players is $150 per unit (labor, $30; materials, $70; and over- hour for each type of cake. head. 550). The sales price is $300 per unit. 4 CHAPTER 1 USING OPERATIONS TO CREATE VALUE PROCESS BETA PROCESS ALPHA B A B A Product 60 30 50 Output (units $1,400 $1,000 $2,000 $1.200 Labor ($ $3,000 $1,400 $3,500 $2,500 Materials a. Which process, Alpha or Beta, is more productive? b. What conclusions can you draw from your analysis? c. Based solely on the labor productivity ratio, which cake should Alyssa try to sell the most? d. Based on your answer in part (a), is there a type of cake Alyssa should stop selling? 6. The Big Black Bird Company (BBBC) has a large order for special plastic-lined military uniforms to be used in an urgent military operation. Working the normal two shifts of 40 hours each per week, the BBBC production process usually produces 2,500 uniforms per week at a standard cost of $120 each. Sev- enty employees work the first shift and 30 employees work the second. The contract price is $200 per uniform. Because of the urgent need, BBBC is authorized to use around-the-clock pro- duction, 6 days per week. When each of the two shifts works 72 hours per week, production increases to 4,000 uniforms per week but at a cost of $144 each. a. Did the multifactor productivity ratio increase, decrease, or remain the same? If it changed, by what percentage did it change? b. Did the labor productivity ratio increase, decrease, or remain the same? If it changed, by what percentage did it change? c. Did weekly profits increase, decrease, or remain the same? 9. The Morning Brew Coffee Shop sells Regular, Cappuccino, and Vienna blends of coffee. The shop's current daily labor cost is $320, the equipment cost is $125, and the overhead cost is $225. Daily demands, along with selling price and ma. terial costs per beverage, are given below. Vienna Coffee Cappuccino Regular Coffee 350 100 150 Beverages sold $2.00 $3.00 $4.00 Price per beverage Material ($) $0.50 $0.75 $1.25 7. Mack's guitar fabrication shop produces low-cost, highly du- rable guitars for beginners. Typically, out of the 100 guitars that begin production each month, only 80 percent are considered good enough to sell. The other 20 percent are scrapped due to quality problems that are identified after they have completed the production process. Each guitar sells for $250. Because some of the production process is automated, each guitar only requires 10 labor hours. Each employee works an average 160 hours per month. Labor is paid at $10/hour, materials cost is $40/guitar, and overhead is 54.000. Harald Luckerbauer, the manager at Morning Brew Cof- fee Shop, would like to understand how adding Eiskaffee (a German coffee beverage of chilled coffee, milk, sweetener, and vanilla ice cream) will alter the shop's productivity. His market research shows that Elskaffee will bring in new cus- tomers and not cannibalize current demand. Assuming that the new equipment is purchased before Eiskaffee is added to the menu, Harald has developed new average daily demand and cost projections. The new equipment cost is $200, and the overhead cost is $350. Modified daily demands, as well as selling price and material costs per beverage for the new product line, are given below. Regular Vienna Coffee Can Coffee Eiskaffee 350 150 75 Beverages sold a. Calculate the labor and multifactor productivity ratios. b. After some study, the operations manager Darren Funk recommends three options to improve the company's multifactor productivity: (1) increase the sales price by 10 percent, (2) improve quality so that only 10 percent are defective, or (3) reduce labor, material, and overhead costs by 10 percent. Which option has the greatest impact on the multifactor productivity measure? 8. Mariah Enterprises makes a variety of consumer electronic products. Its camera manufacturing plant is considering choosing between two different processes, named Alpha and Beta, which can be used to make two component parts A and B. To make the correct decision, the managers would like to compare the labor and multifactor productivity of process Alpha with that of process Beta. The value of process output for component A and B are $175 and $140 per unit, respectively. The corresponding overhead costs are $6,000 and $5,000, respectively. Price per beverage $2.00 $3.00 $4.00 $5.00 Material $) $0.50 557 $1.25 $1.50 a. Calculate the change in labor and multifactor productivity if Eiskaffee is added to the menu. b. If everything else remains unchanged, how many units of Eiskaffee would have to be sold to ensure that the multi- factor productivity increases from its current level? 401 28 CHAPTER 1 USING OPERATIONS TO CREATE VALUE manufacturing and distribution presences there. As you can imagine, means operations managers must think about how to grow the current supply chain beyond the boundaries of existing domestic and International orders additional expansion is to occur. enough energy to completely run the plant as well as the headquarters build ing nearby. The 850 million colored pencils produced each year only use reforested wood, with one tree planted for every tree harvested. Sourcing for paraffin wax used in crayons recently moved from Louisiana to western Pennsylvania, saving 5,000 barrels of oil annually related to wax transporta tion. All plastic components are made with recycled plastics. And any excess wax from the production of crayons is reintroduced into the manufacturing process so no waste is produced, The company is aggressively pursuing new markets outside the United States China's market of children ages 0-14 is larger than all the other global markets combined with more than half the world's child population Yet only 14 percent of the company's total sales come from international markets. So, particular attention is being devoted to growing the company's priorities in Table 1.3 QUESTIONS 1. Map Crayola's five pillars of operational leadership to the competitive 2. Create an assessment of Crayola's competitive priorities as it relates to their Asian expansion plans 3. Which of the competitive priorities might present the biggest challenge to Crayola as it expands internationally? CASE Chad's Creative Concepts Chad's Creative Concepts designs and manufactures wood furniture Founded by Chad Thomas on the banks of Lake Erie in Sandusky, Ohio, the company began by producing custom-made wooden furniture for vacation cabins located along the coast of Lake Erie and on nearby Kelly's Island and Bass Island. Being an outdoors" type himself, Thomas originally wanted to bring a bit of the outdoors" inside. Chad's Creative Concepts developed a solid reputation for creative designs and high-quality workmanship. Sales eventually encompassed the entire Great Lakes region. Along with growth came additional opportunities Traditionally, the company focused entirely on custom-made furniture, with the customer specifying the kind of wood from which the piece would be made. As the company's reputation grew and sales increased, the sales force began selling some of the more popular pieces to retail furniture outlets. This move into retail outlets led Chad's Creative Concepts into the production of a more standard line of furniture Buyers of this line were much more price sen- sitive and imposed more stringent delivery requirements than did clients for the custom line. Custom-designed furniture, however, continued to dominate sales, accounting for 60 percent of volume and 75 percent of dollar sales Currently, the company operates a single manufacturing process in Sandusky where both custom furniture and standard furniture are manufactured. The equipment is mainly general purpose in nature to provide the flexibility needed for producing custom pleces of furniture. The layout puts together saws in one section of the facility, lathes in another, and so on. The quality of the finishod product reflects the quality of the wood chosen and the craftsmanship of dividual workers. Both custom and standard tumiture compete for processing time on the same equipment by the same craftspeople During the past few months, sales of the standard line steadily creased, leading to more regular scheduling of this product line. However when scheduling trade-offs had to be made, custom furniture was always given priority because of its higher sales and profit margins. Thus, scheduled lots of standard furniture pieces were left sitting around the plant in various stages of completion As he reviews the progress of Chad's Creative Concepts, Thomasis pleased to note that the company has grown. Sales of custom furniture re main strong and sales of standard pleces are steadily increasing. However, finance and accounting indicate that profits are not what they should be Costs associated with the standard line are rising. Dollars are being tied up in Inventory, both in raw materials and work in process Expensive public ware- house space has to be rented to accommodate the inventory volume. Thomas also is concerned with increased lead times for both custom and standard orders, which are causing longer promised delivery times. Capacity is being pushed, and no space is left in the plant for expansion. Thomas begins a careful assessment of the overall impact that the new standard line is having on his manufacturing process EESTIONS 1. Wildtynes of decisions must Chad Thomas make daily for his com- contion to run effectively Over the long run? 2 How to cover allect operations when they began to sell eu? Woman to ucini standard fumiture affected the com- har Van Gaas Thomas have done differently to avoid some of the Teshe now foces? Source: This case was prepared by Dr. Brooke Saladin, Wake Forest University as a basis for classroom discussion Copyright © Brooke Saladin Reprinted by permission. orders, which are cause pushed, and no space is left in the plant for expa careful assessment of the overall impact that the new standard line is having on his manufacturing process. single me Decision A decisic decision pieces to retail furniture outlets. This we Concepts into the production of a this line were much more price-sen- y requirements than did clients for Fe, however, continued to dominate be and 75 percent of dollar sales. anufacturing process in Sandusky, furniture are manufactured. The re to provide the flexibility needed layout puts together saws in one so on. The quality of the finished en and the craftsmanship of in- QUESTIONS 1. What types of decisions must Chad Thomas make daily for his com- pany's operations to run effectively? Over the long run? 2. How did sales and marketing affect operations when they began to sell standard pieces to retail outlets? 3. How has the move to producing standard furniture affected the com- pany's financial structure? umiture compete for processing espeople. che standard line steadily in- of this product line. However, Break-E To evaluate a determiningt quantity is th break-even a at which two 4. What might Chad Thomas have done differently to avoid some of the problems he now faces? En, Wake Forest University, as a basis for classroom discussion. Copyright © Brooke Saladin. Reprinted by permission. LEARNIN USING OPERATIONS TO CREATE VALUE CHAPTER 23 wat nicometal forces could be at work that wa Want thould considor? What are the possible core competences of Wild West what weaknesses should it avoid or mitigate? 1. You are designing a grocery delivery business. Viu the In met your company will offer staples and frozen foods in a large metropolitan atend then deliver them within a cus tomer detined window of time. You plan to partner with ID major od stores in the area. What should be your competi live priorities and what capabilities do you want to develop in your core and support processes? Problems The OM Explorer and POM for Windows software is avail ble to all crudents nising the lit edition of this textbook. Go to betp://www.pearsonhighered.com/krajewski to download hire computer packages. If you purchased Myomlab, you also have access to Active Models software and significant help in do- ing the following problems. Check with your instructor on how best to use these resources. In many cases, the instructor wants you to understand how to do the calculations by hand. At the leam, the software provides a check on your calculations. When calculations are particularly complex and the goal is interpreting the results in making decision, the software entirely replaces the manual calculations, Addressing the Trends and Challenges in Operations Management 1. (Refer to Solved Problem 1.) Coach Boum Toulouse led the a. To achieve a 10 percent multifactor productivity improve- mig Red Herrings to several disappointing football seasons Only better recruiting will return the Big Red Herrings to ment by reducing materials costs only, by what percent- age must these costs be reduced? winning form. Because of the current state of the program. Boehring University fans are unlikely to support increases b. To achieve a 10 percent multifactor productivity improve in the S192 season ticket price. Improved recruitment will ment by reducing labor costs only, by what percentage increase overhead costs to $30,000 per class section from the must these costs be reduced? current $25,000 per class section. The university's budget C. To achieve a 10 percent multifactor productivity improve- plan is to cover recruitment costs by increasing the average ment by reducing overhead costs only, by what percent class site to 75 students. Labor costs will increase to $6,500 per age these costs be reduced? credit course. Material costs will be about $25 per student 4. At Symtecks, the output of a specific process is valued at $100 for each 3 credit course, Tuition will be $200 per semester per unit. The cost of labor is $50 per hour including benefits. credit which is supplemented by state support of $100 per The accounting department provided the following informa- semester credit tion about the process for the past four weeks: What is the multifactor productivity ratio? Compared to the result obtained in Solved Problem 1, did productivity Week 1 Week 2 Week 3 Week 4 increase or decrease for the course process? Units Produced 1.124 1,310 1,092 981 b. If instructors work an average of 20 hours per week for Labor ($) 12,735 14,842 10,603 9,526 16 weeks for each 3-credit class of 75 students, what is the labor productivity ratio? Material ($) 21,041 24,523 20,442 18,364 Suds and Duds Laundry washed and pressed the following Overhead ($) 8,992 10,480 8,736 7,848 numbers of dress shirts per week Week Work Crew Total Hours Shirts a. Use the multifactor productivity ratio to see whether re- cent process improvements had any effect and, if so, whe 1 Sud and Dud 24 68 the effect was noticeable. 2 Surt and Jud 46 130 b. Has labor productivity changed? Use the labor productiv- ity ratio to support your answer. 3 Sud, Dud, and Jud 62 152 Alyssa's Custom Cakes currently sells 5 birthday, 2 wedding Sud, Dud, and Jud 51 125 and 3 specialty cakes each month for $50, 5150, and 100 each, respectively. The cost of labor is $50 per hour includin 5 Dud and Jud 45 131 benefits. It takes 90 minutes to produce a birthday cake, 240 minutes to produce a wedding cake, and 60 minutes 3. Calculate the labor productivity ratio for each week. to produce a specialty cake. Alyssa's current multifactor 6. Explain the labor productivity pattern exhibited by the productivity ratio is 1.25. data a. Use the multifactor productivity ratio provided to calcu- White Tiger Electronics produces CD players using an late the average cost of the cakes produced. automated assembly line process. The standard cost of CD b. Calculate Alyssa's labor productivity ratio in dollars per players is $150 per unit (labor, $30; materials, $70; and over- hour for each type of cake. head. 550). The sales price is $300 per unit. 4 CHAPTER 1 USING OPERATIONS TO CREATE VALUE PROCESS BETA PROCESS ALPHA B A A B 60 30 50 Product Output (units Labor ($ $1,000 $2,000 $1.200 $1,400 $3,000 $1,400 $3,500 $2,500 Materials a. Which process, Alpha or Beta, is more productive? b. What conclusions can you draw from your analysis? 9. The Morning Brew Coffee Shop sells Regular, Cappuccino, and Vienna blends of coffee. The shop's current daily labor cost is $320, the equipment cost is $125, and the overhead cost is $225. Daily demands, along with selling price and ma. terial costs per beverage, are given below. Cappuccino Vienna Coffee Regular Coffee 350 100 150 Beverages sold $2.00 $3.00 $4.00 Price per beverage Material ($) $0.50 $0.75 $1.25 c. Based solely on the labor productivity ratio, which cake should Alyssa try to sell the most? d. Based on your answer in part (a), is there a type of cake Alyssa should stop selling? 6. The Big Black Bird Company (BBBC) has a large order for special plastic-lined military uniforms to be used in an urgent military operation. Working the normal two shifts of 40 hours each per week, the BBBC production process usually produces 2,500 uniforms per week at a standard cost of $120 each. Sev- enty employees work the first shift and 30 employees work the second. The contract price is $200 per uniform. Because of the urgent need, BBBC is authorized to use around-the-clock pro- duction, 6 days per week. When each of the two shifts works 72 hours per week, production increases to 4,000 uniforms per week but at a cost of $144 each. a. Did the multifactor productivity ratio increase, decrease, or remain the same? If it changed, by what percentage did it change? b. Did the labor productivity ratio increase, decrease, or remain the same? If it changed, by what percentage did it change? c. Did weekly profits increase, decrease, or remain the same? 7. Mack's guitar fabrication shop produces low-cost, highly du- rable guitars for beginners. Typically, out of the 100 guitars that begin production each month, only 80 percent are considered good enough to sell. The other 20 percent are scrapped due to quality problems that are identified after they have completed the production process. Each guitar sells for $250. Because some of the production process is automated, each guitar only requires 10 labor hours. Each employee works an average 160 hours per month. Labor is paid at $10/hour, materials cost is $40/guitar, and overhead is 54.000. a. Calculate the labor and multifactor productivity ratios. b. After some study, the operations manager Darren Funk recommends three options to improve the company's multifactor productivity: (1) increase the sales price by 10 percent, (2) improve quality so that only 10 percent are defective, or (3) reduce labor, material, and overhead costs by 10 percent. Which option has the greatest impact on the multifactor productivity measure? 8. Mariah Enterprises makes a variety of consumer electronic products. Its camera manufacturing plant is considering choosing between two different processes, named Alpha and Beta, which can be used to make two component parts A and B. To make the correct decision, the managers would like to compare the labor and multifactor productivity of process Alpha with that of process Beta. The value of process output for component A and B are $175 and $140 per unit, respectively. The corresponding overhead costs are $6,000 and $5,000, respectively. Harald Luckerbauer, the manager at Morning Brew Cof- fee Shop, would like to understand how adding Eiskaffee (a German coffee beverage of chilled coffee, milk, sweetener, and vanilla ice cream) will alter the shop's productivity. His market research shows that Elskaffee will bring in new cus- tomers and not cannibalize current demand. Assuming that the new equipment is purchased before Eiskaffee is added to the menu, Harald has developed new average daily demand and cost projections. The new equipment cost is $200, and the overhead cost is $350. Modified daily demands, as well as selling price and material costs per beverage for the new product line, are given below. Beverages sold Price per beverage Material $) Regular Vienna Coffee Can Coffee Eiskaffee 350 150 75 $2.00 $3.00 $4.00 $5.00 $0.50 557 $1.25 $1.50 a. Calculate the change in labor and multifactor productivity if Eiskaffee is added to the menu. b. If everything else remains unchanged, how many units of Eiskaffee would have to be sold to ensure that the multi- factor productivity increases from its current level? 401 28 CHAPTER 1 USING OPERATIONS TO CREATE VALUE manufacturing and distribution presences there. As you can imagine, means operations managers must think about how to grow the current supply chain beyond the boundaries of existing domestic and International orders additional expansion is to occur. enough energy to completely run the plant as well as the headquarters build ing nearby. The 850 million colored pencils produced each year only use reforested wood, with one tree planted for every tree harvested. Sourcing for paraffin wax used in crayons recently moved from Louisiana to western Pennsylvania, saving 5,000 barrels of oil annually related to wax transporta tion. All plastic components are made with recycled plastics. And any excess wax from the production of crayons is reintroduced into the manufacturing process so no waste is produced, The company is aggressively pursuing new markets outside the United States China's market of children ages 0-14 is larger than all the other global markets combined with more than half the world's child population Yet only 14 percent of the company's total sales come from international markets. So, particular attention is being devoted to growing the company's priorities in Table 1.3 QUESTIONS 1. Map Crayola's five pillars of operational leadership to the competitive 2. Create an assessment of Crayola's competitive priorities as it relates to their Asian expansion plans 3. Which of the competitive priorities might present the biggest challenge to Crayola as it expands internationally? CASE Chad's Creative Concepts Chad's Creative Concepts designs and manufactures wood furniture Founded by Chad Thomas on the banks of Lake Erie in Sandusky, Ohio, the company began by producing custom-made wooden furniture for vacation cabins located along the coast of Lake Erie and on nearby Kelly's Island and Bass Island. Being an outdoors" type himself, Thomas originally wanted to bring a bit of the outdoors" inside. Chad's Creative Concepts developed a solid reputation for creative designs and high-quality workmanship. Sales eventually encompassed the entire Great Lakes region. Along with growth came additional opportunities Traditionally, the company focused entirely on custom-made furniture, with the customer specifying the kind of wood from which the piece would be made. As the company's reputation grew and sales increased, the sales force began selling some of the more popular pieces to retail furniture outlets. This move into retail outlets led Chad's Creative Concepts into the production of a more standard line of furniture Buyers of this line were much more price sen- sitive and imposed more stringent delivery requirements than did clients for the custom line. Custom-designed furniture, however, continued to dominate sales, accounting for 60 percent of volume and 75 percent of dollar sales Currently, the company operates a single manufacturing process in Sandusky where both custom furniture and standard furniture are manufactured. The equipment is mainly general purpose in nature to provide the flexibility needed for producing custom pleces of furniture. The layout puts together saws in one section of the facility, lathes in another, and so on. The quality of the finishod product reflects the quality of the wood chosen and the craftsmanship of dividual workers. Both custom and standard tumiture compete for processing time on the same equipment by the same craftspeople During the past few months, sales of the standard line steadily creased, leading to more regular scheduling of this product line. However when scheduling trade-offs had to be made, custom furniture was always given priority because of its higher sales and profit margins. Thus, scheduled lots of standard furniture pieces were left sitting around the plant in various stages of completion As he reviews the progress of Chad's Creative Concepts, Thomasis pleased to note that the company has grown. Sales of custom furniture re main strong and sales of standard pleces are steadily increasing. However, finance and accounting indicate that profits are not what they should be Costs associated with the standard line are rising. Dollars are being tied up in Inventory, both in raw materials and work in process Expensive public ware- house space has to be rented to accommodate the inventory volume. Thomas also is concerned with increased lead times for both custom and standard orders, which are causing longer promised delivery times. Capacity is being pushed, and no space is left in the plant for expansion. Thomas begins a careful assessment of the overall impact that the new standard line is having on his manufacturing process EESTIONS 1. Wildtynes of decisions must Chad Thomas make daily for his com- contion to run effectively Over the long run? 2 How to cover allect operations when they began to sell eu? Woman to ucini standard fumiture affected the com- har Van Gaas Thomas have done differently to avoid some of the Teshe now foces? Source: This case was prepared by Dr. Brooke Saladin, Wake Forest University as a basis for classroom discussion Copyright © Brooke Saladin Reprinted by permission. orders, which are cause pushed, and no space is left in the plant for expa careful assessment of the overall impact that the new standard line is having on his manufacturing process. single me Decision A decisic decision pieces to retail furniture outlets. This we Concepts into the production of a this line were much more price-sen- y requirements than did clients for Fe, however, continued to dominate be and 75 percent of dollar sales. anufacturing process in Sandusky, furniture are manufactured. The re to provide the flexibility needed layout puts together saws in one so on. The quality of the finished en and the craftsmanship of in- QUESTIONS 1. What types of decisions must Chad Thomas make daily for his com- pany's operations to run effectively? Over the long run? 2. How did sales and marketing affect operations when they began to sell standard pieces to retail outlets? 3. How has the move to producing standard furniture affected the com- pany's financial structure? umiture compete for processing espeople. che standard line steadily in- of this product line. However, Break-E To evaluate a determiningt quantity is th break-even a at which two 4. What might Chad Thomas have done differently to avoid some of the problems he now faces? En, Wake Forest University, as a basis for classroom discussion. Copyright © Brooke Saladin. Reprinted by permission. LEARNIN
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Explanation & Answer

Good evening Faleh93,Attached please find the document containing the completed answers to the questions you specified above. Each "page" has its own tab for  your convenience :)Thank you again, and please let me know if you have any questions!Selenica

Question 2
a)

b)

Week
1
2
3
4
5

# of Workers Input (hours) Output (Shirts) Output / Input
2
24
68
2.83 shirts/hours
2
46
130
2.83 shirts/hours
3
62
152
2.45 shirts/hours
3
51
125
2.45 shirts/hours
2
45
131
2.91 shirts/hours

Productivity varies very little when two people are working, regardless of which two people are workin
However, productivity declines when all three people are working, indicating that three laborers is the
point of diminishing returns.

Question 5
Price
Bithday
Wedding
Specialty

50
150
100

a)

Cakes
birthday
wedding
specialty

Minutes

b)

Cakes
Bi...


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