Solved: The Goodparts Company produces a component

that is subsequently used

The Goodparts Company produces a component that is subsequently used in the aero-space
industry. The component consists of three parts (A, B, and C) that are purchased from outside
and cost 40, 35, and 15 cents per piece, respectively. Parts A and B are assembled first on
assembly line 1, which produces 140 components per hour. Part C undergoes a drilling
operation before being finally assembled with the output from assembly line1. There are in total
six drilling machines, but at present only three of them are operational. Each drilling machine
drills part C at a rate of 50 parts per hour. In the final assembly, the output from assembly line 1
is assembled with the drilled part C. The final assembly line produces at a rate of 160
components per hour. At present, components are produced eight hours a day and five days a
week. Management believes that if need arises, it can add a second shift of eight hours for the
assembly lines. The cost of assembly labor is 30 cents per part for each assembly line; the cost
of drilling labor is 15 cents per part. For drilling, the cost of electricity is one cent per part. The
total overhead cost has been calculated as $ 1,200 per week. The depreciation cost for
equipment has been calculated as $ 30 per week.
a. Draw a process flow diagram and determine the process capacity (number of components
produced per week) of the entire process.
b. Suppose a second shift of eight hours is run for assembly line 1 and the same is done for the
final assembly line. In addition, four of the six drilling machines are made operational. The
drilling machines, however, operate for just eight hours a day. What is the new process capacity
(number of components produced per week)? Which of the three operations limits the capacity?
c. Management decides to run a second shift of eight hours for assembly line 1 plus a second
shift of only four hours for the final assembly line. Five of the six drilling machines operate for
eight hours a day. What is the new capacity? Which of the three operations limits the capacity?
d. Determine the cost per unit output for questions (b) and (c).
e. The product is sold at $ 4.00 per unit. Assume that the cost of a drilling machine (fixed cost)
is $ 30,000 and the company produces 8,000 units per week. Assume that four drilling
machines are used for production. If the company had an option to buy the same part at $ 3.00
per unit, what would be the break- even number of units?

ANSWER
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used/

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