Five Star Tools is a small family-owned firm that manufactures diamond-coated cutting tools (chisels and saws) used by jewelers. Production involves three major processes. First, steel blanks” (tools without the diamond coating) are cut to size. Second, the blanks are sent to a chemical bath that prepares the tools for the coating process. In the third major process, the blanks are coated with diamond chips in a proprietary process that simultaneously coats and sharpens the blade of each tool. Following the coating process, each tool is inspected and defects are repaired or scrapped.

Required

a. What steps can be taken to loosen the constraint in coating and sharpening?

b. Consider Model C210 and Model D400 chisels. Which product should be emphasized if the constraint in coating and sharpening cannot be loosened?

c. Focusing only on the Model C210 chisel and the model D400 chisel, what would be the benefit to the firm of gaining one more hour of production time in coating and sharpening?

d. In coating and sharpening, the operator begins by inspecting items that have arrived from the chemical bath. If rough edges or blemishes are detected, the operator smoothes and/or buffs the items before actual coating or sharpening takes place. (Note that this process is in addition to the inspection that takes place at a separate inspection station following coating and sharpening.)

In order to save valuable time in coating and sharpening, management is considering forming a separate inspection station before the coating and sharpening process. The inspection station can utilize existing smoothing and buffing equipment, and it can be staffed on an as- needed basis by an employee who normally works in the chemical bath area, which has excess capacity (so the employee will not be missed for brief periods). Management estimates that this action will free up 24.0 hours in coating and sharpening (an average of 5 minutes per hour X 8 hours per day X 360 operating days per year). Management has calculated that the average contribution margin per unit for its products is $300.The average contribution margin per hour spent in coating and sharpening is $850.

Based on this information, estimate the incremental profit per year associated with adding the new inspectionstation.

Transcribed Image Text:

Model C210 Chisel Model D400 Chisel Selling price Less variable costs: $500 $850 Direct labor Direct material Variable overhead $ 85 150 $180 180 15 250 250 60 420 430 Contribution margirn Less allocated fixed 185 $ 65 230 $200 costs Profit per unit Time in coating and sharpening to produce 1 unit .2 hours 8 hours