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Canine Kennels Company (CKC) manufactures two different types of dog chew toys (A and B, sold in 1,000-count boxes) that arej

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Answer #1

a)

Using traditional approach -

Station W Workload = Demand of product A * Processing time for product A + Demand of product B * Processing time for product B

Station W Workload = 80*11 + 85*14 = 2070 minutes

Similarly, Station X Workload = 80*10+85*20 = 2500 minutes

Station Y Workload = 80*15+85*11 = 2135 minutes

Capacity of each station (Total Time Available) = 40*60 = 2400 minutes per week

Workload of station X exceeds the weekly capacity. Hence, it is the bottleneck.

Contribution margin of product A = 60 - 3 - 5 = 52

Contribution margin of product B = 75 - 7 - 8 = 60

Since, contribution for Product B is higher, hence it should be prioritized.

so, After producing 85 units of B, remaining capacity of bottleneck station X = 2400 - 85*20 = 700 minutes

Production unit of A = 700/10 = 70 units

Using traditional approach, Product mix will be

A = 70 units, B = 85 units

Profit = Contribution margin from both products - Labor cost - Overhead cost

Profit = (70*52+85*60) - 3*40*7 - 3500 = 4400

b)

Using bottleneck approach,

Contribution margin of product A per minute of X processing time on bottleneck station X = 52/10 = 5.2

Contribution margin of product B per minute of X processing time on bottleneck station X = 60/20 = 3

Contribution margin per minute of bottleneck station X time is higher for product A

Therefore, product A is prioritized.

Capacity left on bottleneck station X after producing 80 units of product A = 2400-80*10 = 1600 minutes

Production of B = 1600/20 = 80

Product mix: A = 80, B = 80

Profit = 80*52+80*60 - 3*40*7 - 3500 = 4620

c)

By using bottleneck approach instead of traditional approach, Profit increases by 4620 - 4400 = $ 220

Percentage Increase = 220/4400 = 5 %

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