HDR-11.

21 (Page: 607) Theory of Constraints, throughput contribution, rele

The Pierce Corpn. Manufactures filling cabinets in two operations; machining and finishing. It provides the following informat

Machining Finishing
Annual capacity 110,000 90,000
Annual production 90,000 90,000
Fixed operating costs (Excl.Direct materials) 54,000,000 27,000,000
Fixed operating costs per unit produced 600 300
(54000000/90000; 27000000/90000)

Each cabinet sells for Rs.7,000 and has direct material costs of Rs.3,000 incurred at the start of the machining operation. Pierce

Required:

1. Pierce is considering using some modern jigs and tools in the finishing operation that would increase annual finishing outpu
2. The production manager of the machining department has submitted a proposal to do faster setups that would increase the an
3. An outside contractor offers to do the finishing operation for 9,500 units at Rs.900 per unit, tripple the Rs.300 per unit that i
4. The Reliable company offers to machine 5,000 units at Rs.300 per unit, half the Rs.600 per unit that it costs Pierce to do the
5. Pierce produces 1,700 defective units at the Machining operations. What is the cost to Pierce of the defective items produce
6. Pierce produces 1,700 units at the finishing operation. What is the cost to Pierce of the defective items produced. Explain y
ts, throughput contribution, relevant costs

provides the following information:

the machining operation. Pierce has no other variable costs. Pierce can sell whatever output it produces. The following requirements refer

increase annual finishing output by 1,150 units. The annual cost of this jigs and tools is Rs.35,00,000. Should Pierce acquire these tools.
setups that would increase the annual capacity of the machining department by 9,000 units and would cost Rs.4,00,000 per year. Should Pie
ripple the Rs.300 per unit that it costs Pierce to do the finishing inhouse. Should Pierce accept the subcontracting offer? Show your calcul
unit that it costs Pierce to do the machine inhouse. Should Pierce accept Reliable's offer. Show your calculations
e of the defective items produced. Explain your answers briefly.
ctive items produced. Explain your answers briefly.
he following requirements refer only to the preceding data. There is no connection between the requirements.

uld Pierce acquire these tools. Show your calculations.

s.4,00,000 per year. Should Pierce implement the change? Show your calculations.
acting offer? Show your calculations.
HDR: 11.24 (Page: 611) Product mix; constrained resources

Small Manufacturing company produces three products; A110, B382 and C657. All three products use the same direct materia

Product
A110 B382 C657
Selling price (Rs.) 1680 1120 1400
Variable cost (Rs.)
Direct materials (Rs.) 480 300 180
Labour and other costs (Rs.) 560 540 800
Quantity of material per unit (kgs) 8 5 3

The demand for the products far exceeds the direct materials available to produce the products. Material costs Rs.60 per kg and

Required:
1. How many units of product A110, B382 and C657 should the company produce?
2. What is the maximum amount the company would be willing to pay for another 1200kgs of material?
use the same direct materials. Unit data for the three products are:'

terial costs Rs.60 per kg and a maximum of 5000kgs is available each month. Company must produce a minimum of 200 units of each pro
nimum of 200 units of each product.