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C&A uses two steps to make a toy. Step 1 takes 20 seconds. Step 2 takes...

C&A uses two steps to make a toy. Step 1 takes 20 seconds. Step 2 takes 15 seconds. Each step is staffed by one worker, for a total of two workers. Each worker is paid $15 per hour. Each toy is sold for $20. Material costs are $5 per toy and fixed costs are $500 per hour. Assume demand is unlimited. What will be the impact on C&A’s profit per hour if the processing time of step 2 is reduced to 10 seconds?

No impact on profit

124% decrease

Cannot be determined

124% increase

business   Operations-Management   
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Answer #1

Step 1 takes 20 seconds and is the bottleneck step with maximum time. This step determines the process capacity and how many toys will be produced.

Given the reduction happens in Step 2, there will be no impact on how much demand we can meet. Hence, there will be no impact on profit.

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