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. The diagram shows four alternative paths with the critical path being ABGEFIJ. 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 4 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 2 weeks, but the cost of assembly would increase as a result. Bob said he would be

Exhibit 1: Flow Diagram for Plane Assembly

Exhibit 2: Crash Cost Listing

Exhibit 3: Accelerated Plane Assembly Schedule

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. 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 an accelerated assembly schedule for the cargo plane starting from the regularly scheduled days and cost.
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.
4. How might Silver Aviation use the information in Exhibits 1 and 2 to its competitive advantage?

Transcribed Image Text:

Engine Wing 9 days Frame fuselage 20 days 6 days Cargo doors 3 days Eleca Interior finish 8 days tests 11 days Final testing 3 days Instrument panel 8 days Exterior shell 9 days Exterior paintds 6days Expected Activity Times Regular Accel. 20 days16 days Direct Cost Added Crash Cost per Reduced Day 1,200 1,400 Activity Regular $12,000 3,600 6,600 5,100 1,400 9,000 5,700 6,800 4,200 3,600 3,600 3,500 $65,100 Accel AB Frame fuselage BC Wing placement CD Engine mount DE Landing gear BE Cargo doors BG Electrical wiring GE Instrument panel EF Electrical tests GH Exterior shell I Interior finish HI Exterior paint IJ Final testing $16,800 5,000 8,000 6,700 1,400 11,000 8,300 7,600 5,200 4,000 4,000 4,400 $82,400 700 1,000 1,300 800 400 400 Activity Accelerated Additional Cost per Day Total Direct Cost Hl by one day Fl by one day GHby two days CD by two days EF by one day DE by two days BG by one day S 400 400 500 700 800 800 1,000 S65,100 65,500 65,900 66,900 68,300 69,100 70,700 71,700