Reference no: EM13948211
Young Company produces two subassemblies used by aircraft manufacturers: Sub A and Sub B. Sub A is made up of two components, one manufactured internally and one purchased from external suppliers. Sub B is made up of three components, one manufactured internally and two purchased from suppliers. The company has two processes: fabrication and assembly. In fabrication, the internally produced compo- nents are made. Each component takes 20 minutes to produce. In assembly, it takes 30 minutes to assemble the components for Sub A and 40 minutes to assemble the components for Sub B. Young Company operates one shift per day. Each process employs 100 workers who each work eight hours per day.
Sub A earns a unit contribution margin of $20, and Sub B earns a unit contribution margin of $24 (calculated as the difference between revenue and the cost of materials and energy). Young can sell all that it produces of either part. There are no other constraints. Young can add a second shift of either process. Although a second shift would work eight hours, there is no mandate that it employ the same number of workers. The labor cost per hour for fabrication is $8, and the labor cost per hour for assembly is $7.
1. Identify the constraints facing Young. How many binding constraints are possible? What is Young's optimal product mix? What daily contribution margin is produced by this mix?
2. What is the drummer constraint? How much excess capacity does the other constraint have? Assume that a 1.5-day buffer inventory is needed to deal with any production interruptions. Describe the drummer-buffer-rope concept using the Young data to illustrate the process.
3. Explain why the use of local labor efficiency measures will not work in Young's TOC environment.
4. Suppose Young decides to elevate the binding constraint by adding a second shift of 50 workers (for assembly only). Would elevation of Young's binding constraint improve its system performance? Explain with supporting computations.