3. Explain why production costs are rising in 2013.

4. What recommendations do you have for Reese? (Hint: you should provide the recommendations from answering the following questions: Should he continue to use the reduced production quantity? Should he revert to the 2012 production quantity? Should he purchase a spare filling module for the line? How does your decision affect Belles competitive position going forward?

Year Volume (units/year) Total Run Time/Year (hours) Average Production Quantity (lot size) Number of Setups/Year 2012 18,684,799 2,076 15,000 1,246 21,499,924 2,389 15,000 1,433 2013 (Same production quantity as 2012) 2013 (30% production quantity reduction) 2013 (30% production quantity reduction and 40% setup time reduction 21,499,924 2,389 10,500 6,825 21,499,924 2,389 10,500 6,825 Total Production Time Labor Cost for Total Setup Time/Year (setup time + run time) Production/Year (setup (hours) / Year time + run time) (hours) 1,868 3.945 $1,704,054 Total Scrap Material Cost for Setups/Year $362,167 2,150 4,539 $1,960,793 $416,733 10.238 12,627 $5,454,838 $1,984,443 4,095 6,484 $2,801,133 $1,984,443 Total Material Cost of Production Material Cost/Unit Average Unit Cost Total Cost of Production (labor + scrap + material) $131,496,097 $129,429,876 $6.93 $7.04 $150,768,297 $153,145,824 $7.01 $7.12 $150,768,297 $158.207,578 $7.01 $7.36 $150,768,297 $155,553,873 $7.01 $7.24 Table 1 Year Time Available (hours/year) Capacity Lot Cycle Time (hours/Lot) 3.2 5,760 5,760 3.2 2012 2013 (Same production quantity as 2012) 2013 (30% production quantity reduction) 2013 (30% production quantity reduction and 40% setup time reduction 5,760 1.9 1 5,760 1.0 5 ity Capacity (units/year) Capacity Utilization WIP Inventory 68.5% 225,000 27,284,211 27,284,211 78.8% 225,000 32,691,892 65.8% 157,500 63,663,158 33.8% 157,500 Average Inventory Lead Time Throughput Rate (units/day) 51.902 Throughput Time (days) 4.3 Average Inventory $1,583,459 $1,602,695 59,722 3.8 59,722 2.6 $1,158,967 59,722 2.6 $1,139,527 Year Volume (units/year) Total Run Time/Year (hours) Average Production Quantity (lot size) Number of Setups/Year 2012 18,684,799 2,076 15,000 1,246 21,499,924 2,389 15,000 1,433 2013 (Same production quantity as 2012) 2013 (30% production quantity reduction) 2013 (30% production quantity reduction and 40% setup time reduction 21,499,924 2,389 10,500 6,825 21,499,924 2,389 10,500 6,825 Total Production Time Labor Cost for Total Setup Time/Year (setup time + run time) Production/Year (setup (hours) / Year time + run time) (hours) 1,868 3.945 $1,704,054 Total Scrap Material Cost for Setups/Year $362,167 2,150 4,539 $1,960,793 $416,733 10.238 12,627 $5,454,838 $1,984,443 4,095 6,484 $2,801,133 $1,984,443 Total Material Cost of Production Material Cost/Unit Average Unit Cost Total Cost of Production (labor + scrap + material) $131,496,097 $129,429,876 $6.93 $7.04 $150,768,297 $153,145,824 $7.01 $7.12 $150,768,297 $158.207,578 $7.01 $7.36 $150,768,297 $155,553,873 $7.01 $7.24 Table 1 Year Time Available (hours/year) Capacity Lot Cycle Time (hours/Lot) 3.2 5,760 5,760 3.2 2012 2013 (Same production quantity as 2012) 2013 (30% production quantity reduction) 2013 (30% production quantity reduction and 40% setup time reduction 5,760 1.9 1 5,760 1.0 5 ity Capacity (units/year) Capacity Utilization WIP Inventory 68.5% 225,000 27,284,211 27,284,211 78.8% 225,000 32,691,892 65.8% 157,500 63,663,158 33.8% 157,500 Average Inventory Lead Time Throughput Rate (units/day) 51.902 Throughput Time (days) 4.3 Average Inventory $1,583,459 $1,602,695 59,722 3.8 59,722 2.6 $1,158,967 59,722 2.6 $1,139,527