A manufacturing engineer for the No-Hassle Inc. (the same one presented in the lecture) has come up with a new idea: Build a special tool for the common part, which we will simply call Part X. Part X is used for both P and Q.
The proposed tool will cost the company $3,000. This tool will increase total cycle time for part X from 20 minutes to 21 minutes.
There is no reduction in material cost or reduction in operating expense.
The new tool will allow the company to off-load 1 minute of Resource B and move it to Resource C. Part X would now take 7 minutes in Resource C (it originally took 5 minutes) and would take 14 minutes in Resource B (it originally took 15 minutes).
Here is the proposal in a graphic format – note the changes in common part X. All the other conditions covered in the lecture on the No-Hassle Inc. still apply.
Product P
Sell at $90 each Demand =100/Wk
Resource D 15 minutes
Common Part X 21 min/U
Resource C 10 minutes
Resource A 15 minutes
Purchased Material 1 $20 each
Purchased Part Z $5 each
Product Q
Sell at $100 each Demand = 50/Wk
Resource D 5 minutes
Resource B 15 minutes
Resource A 10 minutes
Purchased Material 3 $20 each
Please answer these 4 questions:
1. What would the change in product mix for P and Q’s be (if any)?
2. What would the changes to net profit be (if any)?
3. What would the payback period be (if any)?
4. Should management accept or reject this proposal?