SCM 352 Exam 2 Study Guide Capacity and Constraint Management ALL ANSWERS 100% CORRECT FALL-2021 AID GRADE A+

Discussion Questions: 1. Distinguish between design capacity and effective capacity. 2. What is utilization? 3. What is efficiency? 4. What is the theory of constraints? 5. Distinguish between bottleneck time and throughput time. 6. What are the 5 steps for managing constraints? 7. What is the objective of break-even analysis? Problems: 1. Marty McDonald has a business packaging software in Wisconsin. His annual fixed cost is $10,000, direct labor is $3.50 per package, and material is $4.50 per package. The selling price will be $12.50 per package. What is the break-even point in dollars? What is the break-even point in units? BEP ($) = F / (1-(V/P)) = $10,000 / (1-($8.00/$12.50)) = $27,777 BEP (x) = F / (P - V) = $10,000 / ($12.50 - $8.00) = 2,222 units 2. T. Smunt Manufacturing Corp has the process displayed below. The drilling operation occurs simultaneously with the sanding operations. The product needs to go only one of the three assembly operations. a. Which operation is the bottleneck? b. What is the bottleneck time? c. What is the throughput time? 15 min/unit 25 min/unit 27 min/unit Bottleneck is drilling at 27 minutes. System throughput time is 15+27+25+26 = 93 min Location Strategies Discussion Questions: 1. What is clustering? 2. What are the major factors that firms consider when choosing a country in which to locate? 3. What factors affect region location decision? 4. List factors, other than globalization, that affect locations decisions 5. Explain the assumptions behind the center-of-gravity method 6. What are the three steps to locational cost-volume analysis 7. Why shouldn’t low wage rates alone be sufficient to select a location? Problems: 1. In Myanmar (formerly Burma), 6 laborers, each making the equivalent of $3 per day, can produce 40 units per day. In rural China, 10 laborers, each making the equivalent of $2 per day, can produce 45 units. In Billings, Montana, 2 laborers, each making $60 per day, can make 100 units. Based on labor costs only, which location would be most economical to produce the item? Based on productivity, which locations would be most economical to produce the item? There are two ways to answer this problem – either by calculating productivity (outputs/inputs) or cost per unit (inputs/outputs) for each location. For productivity, select the location with the highest productivity. For cost per unit – select the location with the lowest cost per unit. In both cases, the conclusion will be the same. Productivity: Myanmar: 40/(6*3) = 2.22 China: 45/(10*2 )= 2.25 Montana: 100/(2*60) = 0.83 ⇨ China has higher productivity Cost per unit: Myanmar: (6*3)/40 = 0.45 China: (10*2)/45 = 0.44 Montana: (2*60)/100 = 1.2 ⇨ China has lowest cost per unit 2. Ken Gilbert owns the Knoxville Warriors, a minor league baseball team in Tennessee. He wishes to move the Warriors south, to either Mobile, Alabama or Jackson, Mississippi. The table below gives the factors that Gilbert thinks are important, their weights, and the scores for Mobile and Jackson. Factor Weight Mobile Jackson Incentive 0.4 80 60 Player satisfaction 0.3 20 50 Sports interest 0.2 40 90 Size of city 0.1 70 30 Which site should he select? Mobile score is calculated as: 0.4*80 + 0.3*20 + 0.2*40 + 0.1*70 = 32 + 6 + 8 + 7 = 53 Jackson score is calculated as: 0.4*60 + 0.3*50 + 0.2*90 + 0.1*30 = 24 + 15 + 18 + 3 = 60 ⇨ Jackson has a higher score and, therefore, it is a better location. 3. The fixed and variable costs for three potential manufacturing plant sites for a rattan chair weaver are shown: Site Fixed Cost per Year Variable Cost per Unit 1 $500 $11 2 1,000 7 3 1,700 4 a. Over what range of production is each location optimal? b. For a production of 200 units, which site is best? a) First, we need to set up total cost equations for each location: Site 1 TC = 500 + 11x Site 2 TC = 1,000 + 7x Site 3 TC = 1,700 + 4x Then, we need to find cross-over points between all three sites: Site 1 – Site 2 crossover point: 500 + 11x = 1,000 + 7x 11x – 7x = 1,000 – 500 4x = 500 x = 125 = i.e., at 125 units, the costs of production between Site 1 and Site 2 are equal Site 1 – Site 3 crossover point: 500 + 11x = 1,700 + 4x 11x – 4x = 1,700 – 500 7x = 1,200 x = 171 Site 2 – Site 3 crossover point: 1,000 + 7x = 1,700 + 4x 7x – 4x = 1,700 – 1,000 3x = 700 x = 233 By plotting the cost curves, it’s easy to see that Site 1 is preferable for production volume between 0 and 125 units, Site 2 is preferable for production volume between 125 and 233 units, and Site 3 is preferable for the production volume above 233 units. Site 1 Site 2 Site 3 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 125 350 Units of Production b) For a production of 200 units, we need to select the site that gives us the lowest cost at this production level: Site 1 TC = 500 + 11*200 = $2,700 Site 2 TC = 1,000 + 7*200 = $2,400 Site 3 TC = 1,700 + 4*200 = $2,500 ⇨ Site 2 has the lowest cost. (This is also easy to see on the chart without doing the calculations)