Confer Company produces two different metal components used in medical equipment. The company has three processes: molding, grinding, and finishing. In molding, molds are created, and molten metal is poured into the shell. Grinding removes the gates that allowed the molten metal to flow into the mold's cavities. In finishing, rough edges caused by the grinders are removed by small, handheld pneumatic tools. In molding, the setup time is one hour. The other two processes have no setup time required. The demand for Component X is 600 units per day, and the demand for Component Y is 1,000 units per day. The minutes required per unit for each product are as follows:
- Minutes Required per Unit of Product
- Molding Grinding Finishing
- Component X 5 10 15
- Component Y 10 15 20
The company operates one eight-hour shift. The molding process employs 24 workers. Two hours of their time, however, are used for setups . The grinding process has sufficient equipment and workers to provide 400 grinding hours per shift.
The Finishing Department is labor intensive and employs 70 workers, who each work eight hours per day. The only significant unit-level variable costs are materials and power. For Component X, the variable cost per unit is $40 and for Component Y, it is $50. Selling prices for X and Y are $90 and $110, respectively. Confer's policy is to use two setups per day: an initial setup to produce all that is scheduled for Component X and a second setup to produce all that is scheduled for Component Y. The amount does not necessarily correspond to each product's daily demand.
REQUIRED:
a) Calculate the time needed each day to meet the daily market demand for Component X and Component Y. What is the major internal constraint facing Confer Company?
b) Describe how Confer should exploit its major binding constraint. Specifically, identify the product mix that will maximize contribution margin and calculate the maximum obtainable contribution margin using your suggested product mix.
c) Assume that manufacturing engineering has found a way to reduce the molding setup time from one hour to 10 minutes. Explain how this affects the product mix and total contribution margin.