As you will recall, the cycle time per unit required at a work center is determined by the estimated effective processing time plus an estimated waiting time. The waiting time estimate (an allowance for process variability) is based on factors for variability, utilization, and processing time, and is characterized by the following equation:

For purposes of this question, the only factor you need to consider is the utilization factor, or u1-u.

a. Your current policy is to maintain a 20% capacity cushion at the work center. Assuming that you are able to operate the work center at an effective utilization rate of 80% under this policy, what is the current value of the utilization factor?

b. In budgeting for the upcoming fiscal year, your senior management team decides that you need to operate this work center at a 95% utilization rate in order to avoid the capital expenditure that would be needed to increase capacity at this work center. Assuming that you can achieve a 95% utilization rate over the next fiscal year, what would be the value of the utilization factor in the VUT equation next year?

c. If the proposed policy change is implemented, and assuming that all of the other factors in the VUT equation remain unchanged, what proportional change will occur in the estimated waiting time at your work center? Show the calculation you will use to determine this.