Table 4.3
The North Bend Manufacturing Company is producing two types of products, A and B. Demand forecasts for next year and other production-related information are provided in the following table:
$$\begin{array} { l | c | c }
& \text { Product A } & \text { Product B } \
\hline \text { Demand forecast (units/yr) } & 4,000 & 12,000 \
\text { Batch size (units/batch) } & 80 & 150 \
\text { Standard processing time (hr/unit) } & 2.5 & 2 \
\text { Standard setup time (hr/batch } & 18 & 24
\end{array}$$
Both products A and B are produced at the same operation called MASAC27A.
-Use the information in Table 4.3 to help answer this question.Currently,the company has 12 MASAC27A machines,and financial constraints prevent any expansion for the next year.Which one of the following alternatives will allow next year's demand to be fully covered?
A) Do nothing.
B) Increase the capacity cushion to 30 percent.
C) Increase the batch size of product B to 300 units.
D) Decrease the capacity cushion by 1 percent.

Question

Table 4.3
The North Bend Manufacturing Company is producing two types of products, A and B. Demand forecasts for next year and other production-related information are provided in the following table:
 $$\begin{array} { l | c | c } 
& \text { Product A } & \text { Product B } \
\hline \text { Demand forecast (units/yr) } & 4,000 & 12,000 \
\text { Batch size (units/batch) } & 80 & 150 \
\text { Standard processing time (hr/unit) } & 2.5 & 2 \
\text { Standard setup time (hr/batch } & 18 & 24
\end{array}$$ 
Both products A and B are produced at the same operation called MASAC27A.
-Use the information in Table 4.3 to help answer this question.Currently,the company has 12 MASAC27A machines,and financial constraints prevent any expansion for the next year.Which one of the following alternatives will allow next year's demand to be fully covered?
A) Do nothing.
B) Increase the capacity cushion to 30 percent.
C) Increase the batch size of product B to 300 units.
D) Decrease the capacity cushion by 1 percent.

Quizplus · Accepted Answer

First, we calculate the total machine hours needed to produce the demand for each product:
Product A = (4,000 units/year ÷ 80 units/batch) × 2.5 hr/unit × 1 machine = 1250 machine hours/year
Product B = (12,000 units/year ÷ 150 units/batch) × 2 hr/unit × 1 machine = 1600 machine hours/year
Total machine hours needed = 1250 machine hours/year + 1600 machine hours/year = 2850 machine hours/year
With 12 MASAC27A machines, the total available machine hours per year are:
12 machines × 365 days/year × 24 hr/day = 105,120 machine hours/year
Therefore, the capacity utilization rate is:
Capacity utilization rate = Total machine hours needed ÷ Total available machine hours × 100% = 2850 machine hours/year ÷ 105,120 machine hours/year × 100% = 2.7%

A) Doing nothing will result in a very low capacity utilization rate of 2.7%, which is not efficient.
B) Increasing the capacity cushion to 30% will only decrease the available machine hours to 73,584 machine hours (105,120 machine hours × 70%), which is not enough to cover the demand for both products.
C) Increasing the batch size of product B to 300 units will result in fewer setups per year since the annual demand can now be produced in fewer batches. The total machine hours needed to produce Product B will be:
(12,000 units/year ÷ 300 units/batch) × 2 hr/unit × 1 machine = 800 machine hours/year
Therefore, the total machine hours needed for both products become:
Product A = (4,000 units/year ÷ 80 units/batch) × 2.5 hr/unit × 1 machine = 1250 machine hours/year
Product B = 800 machine hours/year
Total machine hours needed = 1250 machine hours/year + 800 machine hours/year = 2050 machine hours/year
The capacity utilization rate is now:
Capacity utilization rate = Total machine hours needed ÷ Total available machine hours × 100% = 2050 machine hours/year ÷ 105,120 machine hours/year × 100% = 1.95%
This utilization rate is still not high, but it is the best option among the given choices.

D) Decreasing the capacity cushion by 1% will increase the available machine hours to 106,171 machine hours/year, but it will not make a significant difference in the capacity utilization rate.

Table 43 the North Bend Manufacturing Company Is Producing Two Types

Table 43
the North Bend Manufacturing Company Is Producing Two Types