CASTILLO, QUEENIE MARIE A.

MBAN-1302

Capacity Planning: Problems 1, 3, 7, 11, 15

1. Determine the utilization and the efficiency for each of these situations:
a. A loan processing operation that processes an average of 7 loans per day. The
operation has a design capacity of 10 loans per day and an effective capacity of 8 loans
per day.

b. A furnace repair team that services an average of four furnaces a day if the design
capacity is six furnaces a day and the effective capacity is five furnaces a day.

c. Would you say that systems that have higher efficiency ratios than other systems will
always have higher utilization ratios than those other systems? Explain.
No because the efficiency will depend on the design capacity of the system.

3. A producer of pottery is considering the addition of a new plant to absorb the

backlog of demand that now exists. The primary location being considered will have
fixed costs of $9,200 per month and variable costs of 70 cents per unit produced. Each
item is sold to retailers at a price that averages 90 cents.
a. What volume per month is required in order to break even?
- 46,000 units required in order to break even.
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MBAN-1302
b. What profit would be realized on a monthly volume of 61,000 units? 87,000 units?

- $3,000 profit for volume of 61,000 units

- $8,200 profit for volume of 87,000
c. What volume is needed to obtain a profit of $16,000 per month?

P+FC 16,000+9200
Q = = = 126,000 units
R-v .90-.70

d. What volume is needed to provide a revenue of $23,000 per month?

Total Revenue 23,000

Volume = = = 25,556 units
R 0.90

e. Plot the total cost and total revenue lines.

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7. A firm plans to begin production of a new small appliance. The manager must decide
whether to purchase the motors for the appliance from a vendor at $7 each or to
produce them in-house. Either of two processes could be used for in-house production;
one would have an annual fixed cost of $160,000 and a variable cost of $5 per unit, and
the other would have an annual fixed cost of $190,000 and a variable cost of $4 per unit.
Determine the range of annual volume for which each of the alternatives would be best.
Process 1 Process 2 Vendor
Annual Fixed Cost $160,000 $190,000
Variable Cost $5 $4 $7
Total Cost 160,000+5Q 190,000+4Q 7Q
**Total Cost= Fixed Cost + Volume + Variable Cost

Vendor & Process 1 Vendor & Process 2

7Q = 160,000+5Q 7Q = 190,000+4Q
7Q - 5Q= 160,000 7Q - 4Q= 190,000
2Q= 160,000 3Q= 190,000
Q= 160,000/2 Q= 190,000/3
Q= 80,000 units Q= 63,333.33 units
The range of annual volume is anything from 1 to the breakeven point units
which is 80,000 units in Process 1 and 63,333.33 units in Process 2.

11. a.
Total Processing Time by Machine
Machine
Product A B C Processing Time Needed
Units of Capacity Needed=
1 48,000 64,000 32,000 Processing Time Capacity Per Unit
2 48,000 48,000 36,000
3 30,000 36,000 24,000 Processing Time Capacit per Unit = *600 mins a day x 250 days a year =
4 60,000 60,000 30,000 *10 hrs x 60 mins = 600 minutes 150,000 minutes
Total 186,000 208,000 122,000
Units of Capacity Needed for 186,000
= = 1.24 = 2 machines
Machine A= 150,000
Units of Capacity Needed for 208,000
= = 1.39 = 2 machines
Machine B= 150,000
Units of Capacity Needed for 122,000
= = 0.81 = 1 machine
Machine C= 150,000
Option 1: 2 A machines x $40,000 = $80,000 Machine B has lowest total cost of
Option 2: 2 B machines x $30,000 = $60,000 $60,000 in which you can purchase 2
Option 3: 1 C machine x $80,000 = $80,000 machines.
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MBAN-1302
b. Machine A (2 units): 186,000 min./60 min. = 3,100 hrs. x $10 = $31,000
$31,000 + $80,000 = $111,000
Machine B (2 units):208,000 min./60 min. = 3,466.67 hrs. x $11 = $38,133.37
$38,133.37 + $60,000 = $98,133.37
Machine C (1 unit): 122,000 min./60 min. = 2,033.33 hrs. x $12 = $24,399.96
$24,399.96 + $80,000 = $104,399.96

Machine B will be the option since it has lowest total cost of

$98,133.37 in which you can purchase 2 machines.

15. Capacity of Upper Portion= 15 units/hr

Capacity of Lower Portion= 15 units/hr
Combined Capacity = 15+ 15 = 30 units/hr

a. The combined capacity of upper and lower portion is 30 units/hr,

in Operation 7 can only handle 20 units/hr while Operation 8 can
handle only 24 units/hr. So the total Capacity of the system is 20
units/hr since it is the lowest capacity.

b. Operation 7 which can handle 20units/hr should be increased by 4

units since it has the lowest capacity. By doing this the capacity of the
whole process would became 24 units/hr.

Process Selection and Facility Layout: Problems 2, 4, 8, 11, 13, 15

2. a.In order of most following tasks. Tiebreaker: greatest positional weight.
Cycle time = Operating Time 60 mins/hr
= = 1.8 minutes
Desired Output Rate 33.33 units/hr

Revised Station
# Following Positional Time Assign
Workstation Eligible Time Idle
Task Time Remaining Task
Task Weight Remaining Time
1.8 a,b a(1.4) 0.4
a 1.4 7 6 1
0.4 none - - 0.4
b 0.5 6 4.6 1.8 b b(.5) 1.3
c 0.6 2 1.6 2 1.3 c,d,e e(.8) 0.5
d 0.7 2 2.2 0.5 none - - 0.5
1.8 c,d d(.7) 1.1
e 0.8 2 2.3
3 1.1 c c(.6) 0.5
f 0.5 1 1 0.5 f,g f(.5) 0 0
g 1 1 1.5 1.8 g g(1) 0.8
h 0.5 0 0.5 4 0.8 h h(.5) 0.3
0.3 none - - 0.3
1.2
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MBAN-1302
b. In order of greatest positional weight. Tiebreaker: most following tasks.

Revised Station
Time Assign
Workstation Eligible Will Fit Time Idle
Remaining Task/Time
Remaining Time

1.8 a,b a a(1.4) 0.4

1
0.4 b,e none - - 0.4
1.8 b,e b b(.5) 1.3
2 1.3 c,d,e e e(.8) 0.5
0.5 c,d none - - 0.5
1.8 c,d d d(.7) 1.1
3 1.1 c c c(.6) 0.5
0.5 f,g f f(.5) 0 0
1.8 g,h g g(1) 0.8
4 0.8 h h h(.5) 0.3
0.3 none - - - 0.3
1.2
c. What is the efficiency?

Efficiency =100% - Percent Idle Time

1.2
= 100% - = 83.33%
4 x 1.8

4. a. 1

# Following Positional
a.2 Task Time
Task Weight
a 0.2 4 3.4
b 0.4 3 3.2
c 0.3 3 3.1
d 1.3 2 2.8
e 0.1 3 2.4
f 0.8 2 2.3
g 0.3 1 1.5
h 1.2 0 1.2
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MBAN-1302
a.2 Revised Station
Time Assign
Workstation Eligible Time Idle
Remaining Task
Remaining Time
1.3 a a(.2) 1.1
1.1 b,c,e b(.4) 0.7
1 0.7 c,e c(.3) 0.4
0.4 e e(.1) 0.3
0.3 none - - 0.3
2 1.3 d,f d(1.3) 0 0
1.3 f f(.8) 0.5
3 0.5 g g(.3) 0.2
0.2 none - - 0.2
1.3 h h(1.2) 0.1
4
0.1 none - - 0.1
0.6
a.3 Percentage of Idle Time=(Idle time per cycle/ N actual X Cycle time) x100
= (.6)/(4x1.30) x 100
11.54%

a.4
Desired Output Operating Time 420
= = = 323.08 units
Cycle Time 1.3

4. b.1 Cycle Time = ∑ task time/Workstation = 4.6/2 = 2.3; shortest cycle time feasible

Revised
Time Assign Station
Workstation Eligible Time
Remaining Task Idle Time
Remaining
2.3 a a(.2) 2.1
2.1 b,c,e b(.4) 1.7
1 1.7 c,e c(.3) 1.4
1.4 e e(.1) 1.3
1.3 d,f d(1.3) 0 0
2.3 f f(.8) 1.5
2 1.5 g g(.3) 1.2
1.2 h h(1.2) 0 0
0
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MBAN-1302
b.2 The time is fully utilized, therefore no idle time.
b.3
Desired Output Operating Time 420
= = = 182.61 units
Cycle Time 2.3

b.4
Desired Output Operating Time 420
= = = 91.30 units
Cycle Time 4.6

8. a.

Cycle time = Operating Time 400

b. = = 2 minutes
Desired Output Rate 200

Revised Station
Time Assign
Workstation Eligible Time Idle
Remaining Task
Remaining Time
2 a a(.5) 1.5
1 1.5 b,c b(1.4) 0.1
0.1 none - - 0.1
2 c c(1.2) 0.8
2 0.8 d,e d(.7) 0.1
0.1 none - - 0.1
3 2 e e(.5) 1.5
1.5 f f(1) 0.5
0.5 g,i i(.5) 0 0
2 g g(.4) 1.6
1.6 h,j h(.3) 1.3
4
1.3 j j(.8) 0.5
0.5 none - - 0.5
2 k k(.9) 1.1
5 1.1 m m(.3) 0.8
0.8 none - - 0.8
1.5
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MBAN-1302
c. Revised Station
Time Assign
Workstation Eligible Time Idle
Remaining Task
Remaining Time
2 a a(.5) 1.5
1 1.5 b,c b(1.4) 0.1
0.1 none - - 0.1
2 c c(1.2) 0.8
2 0.8 d,e d(.7) 0.1
0.1 none - - 0.1
3 2 e,f f(1) 1
1 e e(.5) 0.5
0.5 i i(.5) 0 0
2 g,h,j j(.8) 1.2
1.2 g,h g(.4) 0.8
4
0.8 h h(.3) 0.5
0.5 none - - 0.5
2 k k(.9) 1.1
5 1.1 m m(.3) 0.8
0.8 none - - 0.8
1.5
d. Balance delay is also the idle time which is 1.5 minutes
Percentage of Idle Time= (Idle time per cycle/ N actual X Cycle time) x100
= (1.5)/(5x2) x 100
15.00%

11. I would modify assignments into this:

1 5 4
3 8 7
6 2

13. Arrange the departments so they satisfy the conditions shown in the following
rating grid into a 3 × 3 format. Place department 5 in the lower left corner of the 3 × 3
grid.

3 1 8
9 7 4
5 2 6
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MBAN-1302
15. a.
Department Workflow Department Workflow

1-5 370 4-7 50 A B

2-3 360 6-7 50 1 5
3-4 350 2-7 45 C D E
3-8 200 2-5 40
7 4 3
4-5 190 3-6 40
4-8 190 5-7 40 F G H
1-6 135 3-7 20 6 2 8
1-7 125 6-8 20
2-4 120 7-8 20
2-8 120 1-2 10
2-6 115 5-6 10
3-5 110 5-8 10
1-4 90 1-3 5
4-6 70 1-8 0

Trip Distance Frequency Cost ($)

b. Total cost would be $143,650.00
1-2 100 10 1,000.00
1-3 120 5 600.00
1-4 60 90 5,400.00
1-5 40 370 14,800.00
1-6 80 135 10,800.00
1-7 40 125 5,000.00
1-8 110 0 -
2-3 50 360 18,000.00
2-4 40 120 4,800.00
2-5 120 40 4,800.00
2-6 40 115 4,600.00
2-7 70 45 3,150.00
2-8 40 120 4,800.00
3-4 40 350 14,000.00
3-5 60 110 6,600.00
3-6 90 40 3,600.00
3-7 85 20 1,700.00
3-8 40 200 8,000.00
4-5 40 190 7,600.00
4-6 50 70 3,500.00
4-7 45 50 2,250.00
4-8 45 190 8,550.00
5-6 140 10 1,400.00
5-7 60 40 2,400.00
5-8 130 10 1,300.00
6-7 40 50 2,000.00
6-8 60 20 1,200.00
7-8 90 20 1,800.00
143,650.00
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MBAN-1302

Management of Quality: Critical Thinking Exercises 1 to 4

1. A computer repair shop had received a number of complaints on the length of time it
took to make repairs. The manager responded by increasing the repair staff by 10
percent. Complaints on repair time quickly decreased, but then complaints on the cost
of repairs suddenly increased. Oddly enough, when repair costs were analyzed, the
manager found that the average cost of repair had actually decreased relative to what it
was before the increase in staff. What are some possible explanations for the complaints,
and what actions might the manager contemplate?

The possible reason for the increased cost of repairs is because the shop
increases its repair staff thus the salary cost for all staffs would also increase in
which the shop will obtain from the additional repair costs. In order to
contemplate for the complaints on length of time, the manager may train the
employees to improve their skills and in order for them to finish their work
efficiently with the shortest time possible. On the other hand, to reduce cost of
repairs, the manager may look for lower cost items used in repairing computer,
but he should make sure that it has good quality.

2. As a manager, how would you deal with the possibility that customer satisfaction
does not always lead to customer retention?

Customer satisfaction has a very broad meaning since each customer have
different perspective of what satisfies them. As a manager, I would be optimistic
in dealing with my customers. It is a well-known fact that even if the customer is
satisfied from the company’s product, he/she may or may not patronize the
product again. In order to address this, I would attract customers with special
offers such as discounts and promos. I would also reward loyal customers so
they would feel that the management is thanking them for supporting our
products and by doing this, that customer might also attract additional
customers through word of mouth.

3. What quality-related trade-offs might there be between having a single large,

centralized produce processing facility and having many small, decentralized produce-
processing facilities?

Centralized processing facility enables better forecasting, consistent

production and more effective use of limited resources since the decision is only
from the top management. This kind of facility also incurs lower cost for
materials since this is usually located near the source of materials. Decentralized
processing facilities are more flexible than centralized one because it is often
closer to customers which gave them a big advantage in terms of customization.
This kind of facility gives more empowerment for its employees because each
site have
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MBAN-1302

different sets of people who can manage the process. But it is more costly and
maintaining consistency in products is usually a problem. Compared to
decentralized processing, a single processing facility would require more
transportation to and from so more chances for contamination as well as higher
transportation costs.

4. Give three examples of what would be considered unethical behavior involving

management of quality, and state which ethical principle (see Chapter 1) is violated.

Example 1: Claiming that the parts used in replacing damaged part of a car is a
new stock from supplier but it turns out it’s just a fixed part from previously
repaired car. It violated the Rights Principle because the firm is taking advantage
of its customers by using repaired part which might affect the quality of the final
product.
Example 2: Putting false labels on packaging like the ICC Stickers and DTI
inspection but when the customer try the product (i.e. Christmas Lights), it
causes fire or it doesn’t work at all. It violated the Utilitarian Principle since the
product of inaction of the service might cause harm to the user
Example 3: Using substandard raw materials for the production. It violated the
Fairness Principle because maybe the customers will pay a higher price for a
poorly done product.
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MBAN-1302

Quality Control: Discussions and Review Questions 2, 5, 6, 10, 12

2. What are the key concepts that underlie the construction and interpretation of control
charts?
Control charts are constructed to see if there’s an outlier in the process. It
is used to distinguish between random variability and nonrandom variability. It
also can indicate when a problem occurred and give insight into what caused the
problem. By plotting data in the control chart, the production team can easily
identify where the error or the problem in the process is so they can correct it
immediately.

5. Briefly explain the purpose of each of these control charts:

a. x-bar
b. Range
c. p-chart
d. c-chart
X-bar chart is used to monitor the central tendency of a process. This chart
use averages to determine at what points does a process is performing well and
to see where the process is out of control.
Range control charts (R-charts) are used to monitor process dispersion;
they are sensitive to changes in process dispersion. It enables users to see the
pattern of distribution within the process.
P-chart is used to monitor the proportion of defective items generated by
process. It is used when observations are placed in either of two groups. It is
appropriate when both the number of defectives measured and the size of the
total sample can be counted. A proportion can then be computed and used as the
statistic of measurement.
C-charts count the actual number of defects. Users can easily identify the
number of defects per unit using this chart.

6. What is a run? How are run charts useful in process control?

Run is a sequence of observations with a certain characteristic. It is useful
in process control in distinguishing chance variability from patterns of runs. You
can see if there’s a nonrandom pattern in the process. This enables production
manager to do a better job of detecting abnormalities in a process and provides
insights into correcting a process that is out of control.

10. Define and contrast control limits, specifications, and process variability.
Control limits are lines between random and nonrandom deviations from
the mean of the distribution. It is set in order to see what the acceptable values
within the process are and it helps to identify in which part does the process
became out of control. The firm will manually calculate control limits.
Specifications are range of acceptable values in which individual units of output
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12. A new order has come into your department. The capability of the process used for
this type of work will enable virtually all of the output to be well within the specs. (See
Figure 10.15B.)
a. What benefits might be derived from this situation?
b. What alternatives might be considered by the manager?

a. If all output are well within specifications, it reduce scrap, rework, and
warranty claims, it maximizes productivity, improve resource utilization,
reduce cost, improved client satisfaction and overall increase in operation
efficiency.
b. The manager must be mindful about the variability of the process and
carefully look for errors in the process. The production should be extra
careful because even though outputs are within specifications, there might
be underlying problems that the manager didn’t foresee. They could also
research improve the process in order to get higher efficiency and
utilization.