Silver Aviation assembles small aircraft for commercial use. The majority of its business is with small freight airlines serving areas whose airports do not accommodate larger planes. The remainder of Silver’s customers are commuter airlines and individuals who use planes in their businesses, such as the owners of larger ranches. Silver recently expanded its market into Central and South America, and the company expects to double its sales over the next three years. To schedule work and track all projects, Silver uses a flow diagram. The diagram for the assembly of a single cargo plane is shown in Exhibit 1.

EXHIBIT 1

Flow Diagram for Plane Assembly

The diagram shows four alternative paths with the critical path being ABGEFJK. Bob Peterson, president of Coastal Airlines, recently placed an order with Silver Aviation for five cargo planes. During contract negotiations, Bob agreed to a delivery time of 13 weeks (five work days per week) for the first plane with the balance of the planes being delivered at the rate of one every four weeks. Because of problems with some of the aircraft that Coastal is currently using, Bob contacted Grace Vander, sales manager for Silver Aviation, to ask about improving the delivery date of the first cargo plane. Grace replied that she believed the schedule could be shortened by as much as 10 work days or two weeks, but the cost of assembly would increase as a result. Bob said he would be willing to consider the increased costs, and they agreed to meet the following day to review a revised schedule that Grace would prepare. Because Silver Aviation previously assembled aircraft on an accelerated basis, the company has a list of costs for this purpose. Grace used the data shown in Exhibit 2 to develop a plan to cut 10 working days from the schedule at a minimum increase in cost to Coastal Airlines.

EXHIBIT 2

Crash Cost Listing

Upon completing her plan, she reported to Bob that Silver would be able to cut 10 working days from the schedule for an associated increase in cost of $6,600. Grace’s Exhibit 3 shows accelerated assembly schedule for the cargo plane starting from the regularly scheduled days and cost.

EXHIBIT 3

Accelerated Plane Assembly Schedule

Required

1. Is Grace’s plan satisfactory? Why or why not?

2. Revise the accelerated assembly schedule so that Coastal Airlines will take delivery of the first plane ahead of schedule at the least incremental cost to Coastal.

3. Calculate the incremental costs that Bob will have to pay for this revised accelerated delivery.

Transcribed Image Text:

EXHIBIT1 Flow Diagram for Plane Assembly Engine 9 days Frame fuselage 20 days Electial Interior finish 8 days Final Cargo doors 3 days tests 11 days 3 days 8days Exterior shell 9 days Exterior paint 6days 4