Gary’s Gears is a production facility that produces metal gears. The first step is stamping, which happens at a press. There are two identical presses that operate simultaneously (gears can be stamped on either press). A press stamps one part at a time. It takes 1 minute to stamp a part, including loading and unloading. Before beginning a new batch of parts, there is a 20-minute setup involving die change. The batch size is 100 parts. In other words, after stamping 100 parts, the press must be set up again. The stamped parts are stored in a buffer area, called as the work-in-process (WIP) inventory rack. From here, the parts are taken to the furnace, where they are annealed (heat treated). Parts from different batches can be annealed together. To perform annealing, a boat (a type of fixture for holding stamped parts) loaded with parts is inserted into the furnace. While those parts are being annealed, newly stamped parts are loaded onto a spare furnace boat. Each boat can hold 70 parts. Once the boat is full, additional stamped parts are placed in the WIP inventory rack. After annealing is completed, the boat in the furnace is swapped with the boat outside the furnace and the next annealing cycle begins. Each annealing cycle takes a total of 30 minutes. The time to load and unload parts from a boat is very short, and can be neglected. The above system operates 8 hours a day, Monday through Friday. On Mondays, however, the furnace and both boats are cleaned. Thus, all parts stamped by the presses go straight to the WIP inventory rack on Mondays.

Questions

1. What is the throughput capacity of this system, in parts per week? In other words, how many parts can be processed per week?

2. What is the required buffer capacity of the WIP inventory rack?

3. What is the average inventory level in the WIP inventory rack (averaged over the factory operating hours)?

4. What is the system throughput capacity if the WIP inventory rack can hold only 500 parts?

5. What is the average number of factory operating hours that a part spends in the WIP rack in question 2? (Parts that do not wait in the WIP rack should be included in this average, and have zero waiting time by definition.)

6. What is the average number of factory operating hours that a part spends in the WIP rack in question 4? (Parts that do not wait in the WIP rack should be included in this average, and have zero waiting time by definition.)

You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.9 million for this report, and I am not sure their analysis makes sense. Before we spend the $28 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars):

All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today  (year 0), which is what the accounting department recommended for financial reporting purposes. Canada Revenue Agency allows a CCA rate of 45 % on the equipment for tax purposes. The report concludes that because the project will increase earnings by $ 5.824 million per year for ten years, the project is worth$ 58.24million. You think back to your glory days in finance class and realize there is more work to be done!

First, you note that the consultants have not factored in the fact that the project will require $ 7 million in working capital upfront  (year 0), which will be fully recovered in year 10.  Next, you see they have attributed $2.24 million of selling, general and administrative expenses to the project, but you know that $ 1.12 million of this amount is overhead that will be incurred even if the project is not accepted.  Finally, you know that accounting earnings are not the right thing to focus on.

 

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Project Year Earnings Forecast ($000,000s) 1 9. 10 Sales revenue 35.000 35.000 35.000 35.000 - Cost of goods sold = Gross profit - General, sales, and administrative expenses 21.000 21.000 21.000 21.000 14.000 14.000 14.000 14.000 2.240 2.240 2.240 2.240 - Depreciation = Net operating income 2.800 2.800 2.800 2.800 8.9600 8.9600 8.9600 8.9600 - Income tax 3.136 3.136 3.136 3.136 = Net income 5.824 5.824 5.824 5.824 Project Year Earnings Forecast ($000,000s) 1 9. 10 Sales revenue 35.000 35.000 35.000 35.000 - Cost of goods sold = Gross profit - General, sales, and administrative expenses 21.000 21.000 21.000 21.000 14.000 14.000 14.000 14.000 2.240 2.240 2.240 2.240 - Depreciation = Net operating income 2.800 2.800 2.800 2.800 8.9600 8.9600 8.9600 8.9600 - Income tax 3.136 3.136 3.136 3.136 = Net income 5.824 5.824 5.824 5.824

Answer rating: 100% (QA)

ANSWER 1 The system has two processes a Stamping Process 100 parts can be stamped in 100 minutes followed by 20 mins die change So 100 parts can be st... View the full answer